BT fails in bid to make rivals plug its £9bn pension deficit

BT has failed in its bid to force its rivals to help plug the former state-owned telecom monopoly's £9bn pension fund deficit.

BT Group

Ofcom, the communications regulator, on Friday rejected BT's plan to put up the prices it charges rivals to use its nationwide network in order to help drag its pension fund out of the red.

The regulator said there was no "compelling evidence" to justify allowing BT to increase the wholesale prices its Openreach unit charges BSkyB, Cable & Wireless Worldwide (CWW) and TalkTalk.

BT had claimed that it should be able to ask its rivals to help fund extra pension contributions because its pensioners created the network that Sky, CWW and TalkTalk are piggy-backing on.

BT is pumping an extra £525m a year into its pension fund - the UK's largest - in order to reduce the deficit.

In its preliminary ruling, which is unlikely to be changed, Ofcom said allowing BT to recoup the cost of the extra pension payments could unfairly force up the prices paid by businesses and consumers.

Ofcom said any change to the current status quo, in which it takes into account BT's pension costs but not the extra payments, "could lead to fluctuations in wholesale prices which... would potentially, lead to those prices being set at levels which do not accurately reflect the relevant underlying costs".

A source close to BT said the company only expected to collect "tens of millions" of extra cash from the increased price so there would be no "material impact" on its cashflow.

However, John Ralfe, an independent pensions expert hired by BT's rivals to analyse its pension, said: "BT would have been hoping that the Ofcom ruling would be a 'magic bullet' that would mean they could pass on about a third of their deficit to consumers. That is not going to happen now and it is bad news for BT."

TalkTalk and CWW which viciously attacked BT's proposals in March welcomed Ofcom's ruling.

A TalkTalk spokesman said: "Ofcom has rightly recognised that consumers should not bear this surcharge."

Earlier this year CWW said: "BT's efforts to persuade Ofcom that its deficit is in some way an act of God is not supported by the facts."

CWW added that there was "overwhelming" evidence that "BT has been the sole architect of the entire deficit" and claimed that "BT paid its shareholders higher dividends "at the expense of adequately funding its pension scheme".

Ofcom will make a final ruling later this year.

Source: The Telegraph, 23rd July 2010

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