Watchdog's probe forces BT to rent a dog and bone for less

BT is to slash its phone rental charges to three million customers after an investigation found it guilty of "excessive pricing".

Within a fortnight, telecoms regulator Oftel is due to publish the results of a two-year probe into whether BT charges too much. Around 10 per cent of householders with fixed telecoms lines pay between £4.99 and £7.99 a quarter to rent a handset from BT.

But The Independent on Sunday has learnt that Oftel will rule that customers are getting a poor deal.

BT declined to comment, and Oftel would only say that a ruling "was due shortly". But well-placed sources revealed that the two parties have held discussions on the issue in the past few weeks. As a result, BT has agreed to pre-emptive price cuts before Oftel publishes the findings of its investigation into whether the company has abused its dominant position under the Competition Act.

The exact cut has yet be agreed, but one source said it would be "substantial". The move will dent BT's revenues as it is thought to generate at least £70m a year from rentals.

For around 20 years, customers have had the option of buying their own handset. But there is still a hard core who prefer to rent. Oftel is worried that this is largely due to "inertia" - customers not exercising choice.

In 2001, the regulator carried out research into the rental market. When BT customers were asked why they rented a phone, the largest proportion of respondents said it hadn't occurred to them to buy one. Oftel also found that the people who were most likely to rent their phone were over 55 years' old and had an annual household income of £17,500 or less.

However, the market is declining. It is understood that each week between 8,000 and 9,000 customers switch from renting to owning a phone. Around 2,000 people each week decide to rent rather than buy.