OFCOM will next month lift historic price controls on BT after the communications watchdog found that competition in the fixed-line telephone market would provide an effective curb.

The move — which comes 22 years after BT’s privatisation — is expected to deliver cheaper phone bills for consumers after BT agreed to limit increases in its line rental fees and hinted that the cost of phone calls would be cut. “Over the last decades, prices have come down by a billion pounds and we expect to see that trend continue,” a spokesman for BT said.

Ofcom’s decision comes amid fierce competition for Britain’s telecoms and broadband customers, with less traditional players such as BSkyB, the broadcaster, and Tesco, the supermarket, all trying to grab market share. BT also faces stiff competition from mobile phone operators. Its customers have an average annual phone bill of £328. If BT drops the cost of line rental to the £9 offered by some competitors, its customers will save £24 a year. Possible reductions on the 5.5p an hour evening and weekend calls would deliver further savings.

Ian Livingston, chief executive of BT Retail, said: “A freer BT will deliver better value and innovation for residential customers.”

Although BT can increase its pricing, the telecoms group said a significant rise was unlikely because it would drive customers away. Charles Dunstone, chief executive of rival Carphone Warehouse, said: “If they put their prices up too much, they will feel the effect of competition.”

The lifting of price controls will come into force from August 1. BT remains subject to Ofcom controls on the wholesale prices it can charge other telecoms and broadband providers to use its networks, as well as the price it charges other firms to have their equipment in BT’s exchanges.

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