Factiva

Next year, the position of British Telecom and its rival, Mercury Communications, comes up for review by the industry watchdog, the Office of Telecommunications, (Oftel), which will be investigating whether further competition in telecommunications services is required and, if so, how it should be provided.

The concept of two national operators was formulated in the early 1980s to provide domestic and business users with a choice. It was also hoped that a new service would force BT, the traditional monopoly, into providing an improved service.

However, as 1990 approaches, critics argue neither company is providing the desired level of service, and that many domestic and business customers are left without any real choice. In many areas it is not possible yet to access the Mercury network and, even where access is available, it is often not a realistic proposition.

BT is hampered by its outmoded nationwide network, which suffered for many years from under-investment. BT is now installing new digital technology at a cost of Pounds 2.5 billion a year. Even so, it will not be all-digital before 2000.

It claims considerable improvement in quality of service, saying that in March this year, 80 per cent of faults were being repaired within one working day, compared with 55 per cent the same time last year. But its record on new exchange lines is not so good; only 62 per cent of business lines and 69 per cent of residential lines are installed within six to eight days.

The charge against Mercury is cream-skimming. Vivienne Peters, chief executive of the Telecommunications Users' Association, says Mercury is going only for large users, whether residential or business. It has pursued a niche-market strategy 90 per cent of its customers are in the City of London and has not, it is claimed, energetically promoted its residential service, which has been available for nearly two years.

In business terms, Mercury needed to build up usage of the network and gain market share as quickly as possible, and the best way to do this was to go for the biggest users.

Stephen Owen, an analyst with James Capel, says Mercury now has only about 2 per cent of the total market. He breaks that down into 5.2 per cent of large business customers, and 0.3 per cent of high-use residential customers. But he predicts that by 1993, it will have 9.4 per cent of the total market, made up of 18.5 per cent, 10 per cent and 5.7 per cent for large and medium businesses and domestic customers respectively.

Mercury has the advantage of a high-quality, all-digital network, on which it can immediately provide more sophisticated services, and it benefits from the lower maintenance costs. The network, laid in 1984, resembled a figure of eight in the area it covered, running alongside BR Inter-city tracks. It now offers access to most urban areas, from the south coast to Scotland. Mercury is also starting to lay local networks in inner-city areas.

However, the scale of the task of building a new national network means that it cannot be done quickly, and there are still chunks of the UK not covered. The only option for customers in those areas is an indirect connection (the 2200 and 2300 services) to the Mercury network.

They access its network by sending calls via the BT network to the nearest Mercury exchange by using a special Mercury phone with a blue button, or for business telephones, a piece of equipment known as a Smartbox.

To date, customers wanting indirect connection have been hampered by a dispute between the two companies about how they should interconnect the two networks. That dispute has recently been resolved and it should be possible next year to access Mercury indirectly from almost anywhere in the country.

The main attraction of Mercury is its tariffs, which represent large savings on those of BT. A survey by stockbrokers James Capel, showed that neither line quality nor quality of service, which most Mercury users rate as minimally higher than those of BT, affect customer choice.

For businesses with a direct line connection, savings of about 10 per cent on international calls, and up to 17 per cent on national trunk calls, are claimed. Savings are less on the 2200 and 2300 services, because those have to travel part of the way over the BT network. Domestic customers would have to make a high proportion of long-distance calls to make it worthwhile.

The amount saved would also depend on where the calls are going. For example, anyone who today found that most calls were going from London to Norwich, would not get much benefit, because that link has not yet been laid. Savings on local calls will be minimal, except for customers in cities where Mercury has installed its own fibre cable.

Large businesses can make big savings by using Mercury. Most, however, do not change over completely but ``dual-source'' divert a proportion of traffic to Mercury, and keep the rest on BT.

Dual-sourcing gives the customer the best of both companies, and gives them more power in a dispute with one of them. BT has already reacted to the price competition by lowering tariffs on some international routes. Inland charges have been frozen for nearly three years, but an increase is imminent.

(c) Times Newspapers Ltd, 1989

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