They may have helped JR Hartley find his obscure book on fly fishing, but BT's Yellow Pages are abusing their monopoly position in classified directories to charge excessive prices to advertisers, according to a Monopolies and Mergers Commission report published yesterday.

John Taylor , the competition and consumer affairs minister, accepted the report and its recommendation that BT reduce its classified advertising charges by 2 per cent a year in real terms. On the basis of yesterday's inflation figures, prices for ads will rise by less than 1 per cent a year.

The MMC also found that the publication by BTYP of local directories was likely to "seriously weaken competition". They recommended that the company should be prohibited from covering any area with more than one classified directory.

BT is currently considering its position on the weightier matter of whether to go to the Monopolies Commission for arbitration on the recommendation from industry regulator Oftel that its retail prices should be capped at between 5 and 9 per cent below the rate of inflation. Those proposals, which BT called "severe" and "disappointing", could result in telephone bills falling by 27 per cent in real terms in the four years from 1997.

Mr Taylor stopped short of endorsing the MMC's call for BTYP to be established as a subsidiary of BT. He said the report showed that the existing relationship between BT and BTYP appears to confer no significant favours on BTYP and thought the costs of such a separation too high to justify a demerger.

But he said he had decided that BT should be required to publish annual accounts for BTYP to make the profitability of its classified directory advertising business public and transparent, and to encourage competition: "The Director General of Fair Trading will keep the market under review and I have asked him to report back in three years time, or earlier if necessary, on the effectiveness of the remedies."

BT said Yellow Pages would co-operate fully with MMC recommendations. But it was disappointed that the Government had accepted the plan to impose price controls. A spokesman said: "The report itself acknowledges that price controls can pose a serious consequential threat to other directory publishers, accepting the point that such controls can be counter-productive in encouraging the development of competition."