The telecommunications regulator planned to offer a new licence for PCCW giving the dominant fixed-line carrier freedom to set its own prices, according to industry sources. In a consultation paper expected to be released today, the Office of the Telecommunications Authority (Ofta) is to propose the new licence as an alternative to declaring the operator 'non-dominant'. This will still give PCCW the liberty to set prices in the residential market without prior approval, which the operator requested 12 months ago as rivals chip away at its market share by offering lower tariffs. But the proposal will also preserve Ofta's ability to go after PCCW should the operator abuse its market clout. In a consultation paper last year, Ofta noted existing rules meant a straight declaration of non-dominance could give PCCW ammunition to argue against subsequent attempts to curtail any anti-competitive behaviour. The long-awaited announcement comes as PCCW considers legal action against the regulator for allowing rival City Telecom to offer voice over internet protocol (VoIP) services over PCCW's broadband network. By last night, Ofta had yet to respond to a deadline imposed by PCCW, which demanded the services be stopped. Ironically, the advent of this new technology in the hands of competitors would seem to bolster PCCW's case that it is losing its dominance. In principle, any broadband-connected household now has an alternative for local call service. 'The obvious answer is that VoIP's deployment would boost our case for non-dominance, although it was already compelling 12 months ago when we lodged the application,' PCCW director of regulatory affairs Stuart Chiron said. An Ofta spokeswoman refused to confirm whether the regulator would release a consultation paper today. Last month in Berlin, Ofta director-general Au Man-ho highlighted the significance of VoIP technology. 'Its introduction may require a fundamental review of our regulation,' Mr Au said. As such, PCCW's threat to pursue Ofta in court to stop the introduction of internet telephony appears a high-risk strategy. A successful outcome could conceivably undermine Ofta's justification for removing pricing restrictions. Any ruling to allow PCCW pricing freedom in the fixed-line residential market - where it has 70 per cent of homes - is likely to meet strong resistance from rivals. Many have already complained of the firm's increasing tendency to resort to court action to settle commercial disputes. How PCCW, controlled by Richard Li Tzar-kai, might behave when it is fully unshackled is a pertinent issue. The regulator must take these concerns into consideration, along with the recognition that VoIP and other emerging technologies are reshaping the market dynamics. Mr Au recently acknowledged fixed-line operators face lost interconnections fees as new technologies develop. He suggested they would have to develop new business models - although that would be harder when a raft of restrictions on pricing and bundling exist.