The British Competition Commission agreed this morning to reduce price constraints on Yell, the telephone directories group.

In its final report on the printed classified directories market, the Commission said that there was less need for a cap on the publisher of the Yellow Pages directory because of competition from internet seach engines and new players, including BT.

Under the new rules, Yell can raise the prices of classified advertisements in line with inflation. Present restrictions, which will end in March 2008, require Yell to restrict prices to the rate of retail price inflation minus 6 per cent, forcing it to cut charges.

Diana Guy, the chairman of the investigation, which began in April last year, said: "Whilst Yell still holds a powerful position in this market, we expect growing competition will increasingly constrain Yell's prices and that Yell will feel more pressure due to the internet.

"In the meantime the price control will prevent Yell from exploiting its market power."

The Office of Fair Trading ordered the probe after it found that Yell's Yellow Pages and Thomson Local directories dominated 90 per cent of the market, limiting competition for classified adverts.

In the past five years revenues from classified directory adverts have continued to increase.

Yell said that it intended to accept the remedies, but added that it continued to believe that the regulation was unnecessary.

The Commission, which acknowledged that the directories market was changing, said that it would conduct a review three years after the new pricing started.

It added that although few customers were switching from printed directories to the internet at present, it expected that internet advertising would increase and that printed directory advertising could fall.

The Commission also agreed to allow Yell to publish local "second-tier" directories, but said that it would impose restrictions on the quantities and locations of distribution.

New "themed" guides will be permitted, but with a limit on the number of classified adverts they can contain.

Shares in Yell were up 5p to 573 pence at 9.12am.

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