6.4
We also recommend the introduction of an RPI plus formula for domestic services until the level of cross-subsidy currently in exist- ence has been removed (an increase of 32% above current tariffs would need to be achieved). Implementation of price reduction and price capping to mimic the benefits of competition is not an ideal solution; the experience of other markets clearly points to the efficacy of competition in letting the market decide what a reasonable return is on the provision of telecommunications services. In addition, price capping does not bring the same level of stimulation in the provision of new and innovative services, it does not provide choice, and it may not encourage the same pressure for efficiency on the incumbent service provider. It should not, therefore, be viewed as a simplified mechanism for achieving the benefits of Option 2.
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