The competition watchdog proposed on Thursday to ease price controls on directories firm Yell Group Plc from April 2008, saying it faced increased competition from a new rival and the Internet.

The Competition Commission said it planned to allow Yell, publisher of the Yellow Pages, to raise prices in line with the retail price index.

Yell currently operates under a cap which limits price increases to six percentage points below the rate of inflation.

BT's entry into the market offered the prospect of stronger competition with Yell, the Commission said in a statement, referring to a rival classified advertising service from the telecoms group.

It also said that advertising on the Internet would increase, and could hit directories in future.

The Commission said it was publishing its proposals for consultation and that it would make its final report by April 4, 2007, at the latest.

We obviously welcome the proposed reduction in the level of advertising price regulation envisaged in the Commission's provisional remedies, Yell said in a statement.

We would nevertheless believe that market forces, rather than regulation, should always be the preferred route.

Yell shares closed at 533 pence on Wednesday, valuing the business at about 4.1 billion pounds.