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BT may take Ofcom to court over pension costs
Wednesday 15 December 2010 15:23:14 by John Hunt

Ofcom has confirmed its decision to not change the way it treats BT's wholesale costs in terms of the pension deficit it is running. Ofcom had previously consulted twice over this matter and BT has said it will seriously consider legal action if the regulator did not change its tact.

BT believe that it should be able to take in to account pension costs when setting wholesale costs for its Openreach services which are regulated by Ofcom. This is generally the practice used in other industries as Ofgem allows energy companies to increase wholesale charges to help with pension deficits. Indeed, Ofcom increased its own fees to BT partly to help cover costs of a deficit in their pension.

"We believe that we have provided strong evidence that pension deficit payments should be reflected in our costs while there is also precedent from other regulated industries to support our view.

We will be reviewing Ofcom's document in detail before deciding on an appropriate course of action."

BT Statement

BT were running a £5.2bn deficit on the pension scheme at the end of September. The full Ofcom statement can be read here.

Comments

Posted by Dixinormous over 6 years ago
Don't see how Ofcom can win this one. Obsession over keeping things as cheap as possible is annoying and has hosed the market, I guess they wanted to keep the string of failures flowing.

NuLabour bureaucracy that will be gratefully forgotten.
Posted by chrysalis over 6 years ago
BT's past failures but that's irrelevant, ofcom are wrong on this. costs are costs. ofcom will embarass itself in the court.
Posted by Norest over 6 years ago
Its good to see BT suffer, especially after all the misery they have caused me over the years!
Posted by Dixinormous over 6 years ago
Well not really BT's failures, they inherited the typical overly generous public sector pension scheme.
Posted by GMAN99 over 6 years ago
So.. let me get this straight. Its common practice (what BT are asking) in other sectors and Ofcom themselves raised their own costs to BT to help with Ofcom's own pension deficit?

Love to see this one in court... it will be laughed back out again.
Posted by mhc over 6 years ago

GMAN99 - It won't be laughed out of court (that would happen if the judge thought BT were trying it on), but BT should walk away victorious.

I know the sort of pensions OFCOM staff receive with BT and the OLOs are paying a fortune towards it and ultimately we as customers are having to pay.
Posted by herdwick over 6 years ago
"did not change its *tack*", shirley ?
Posted by chrysalis over 6 years ago
Dixinormous yes but they still failed to manage it for many years, they could have diverted dividends to it eg.
Posted by GMAN99 over 6 years ago
chys don't forget they had a another debt of some 16 billion as well to manage which I think they still have about 5 or 6 of left.
Posted by Dixinormous over 6 years ago
It wasn't that bad at last valuation Chrysalis, it only really kicked off more recently. BT have been paying towards it as the years have been progressing.
Posted by Dixinormous over 6 years ago
Chrysalis: 'The previous triennial funding valuation showed a funding deficit of £3.4bn at 31 December 2005 and BT paid deficit payments, under a 10-year recovery plan, equivalent to £280m per annum over the three years to 31 December 2008.'

They *are* managing this, even though Ofcom appear to not want to allow them to recoup the costs while simultaneously charging them for their own pensions.
Posted by themanstan over 6 years ago
Actually they're paying over half a billion a year and will continue to do so for the next three years... current deficit is £5.2B

http://www.guardian.co.uk/business/2010/feb/11/bt-pension-deal-regulator-concerns

http://www.bbc.co.uk/news/business-11692261
Posted by themanstan over 6 years ago
So looks like pension scheme does well and shareholders get very little, 7 p last year per share
Posted by c_j_ over 6 years ago
Just because Ofcom are doing this with their pension fund does *not* mean BT should be allowed to do it too. Quite the reverse, in fact.

On the other hand, while it may be good to see BT *managers* suffer (they are responsible for this deficit after all), why should the employees pay the price of management/investment failure?

Don't like Peston but have a look at:
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/02/bt_9bn_hole_how_much_could_fal.html
Posted by GMAN99 over 6 years ago
If its allowed in other sectors cj why shouldn't BT be able to do it, what is the special reason to prevent it?
Posted by themanstan over 6 years ago
c_j I could have sworn external fund managers are responsible for the BT pension scheme, much like all other pensions schemes... or do you have any inside of knowledge on how BT operate that we are unaware of?
Posted by c_j_ over 6 years ago
BT management are responsible for the BT pension scheme. BT's pension fund management picks the external fund managers and sets their investment goals. BT's pension fund management probably pays the external managers whether or not they meet their goals.

The reason to prevent it for BT when it's allowed for others is that in most markets there are practical alternatives. Customers who do not like paying for BT management incompetence can go elsewhere.

BT is a (badly regulated) monopoly. Many BT customers have no option to go elsewhere. Why should they pay for BT management incompetence?
Posted by GMAN99 over 6 years ago
What has it got to do with the customer how a company chooses to spend its monies c_j ?
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