UPDATE TalkTalk and Sky Accuse BT of Using Accounting Trick to Hike Prices

Ofcom’s on-going review into the United Kingdom’s fixed telecoms market took a new turn today after ISPs Sky Broadband and TalkTalk accused BT of using “accounting tricks” to make the price of UK unbundled (LLU) Internet and phone lines more expensive for rival ISPs, which usually gets passed onto consumers.

The telecoms regulator began a series of reviews into the health of the market for fixed line broadband and phone services last year (here) and part of that includes ensuring BT, which is the national incumbent and one that is often deemed to have Significant Market Power (SMP) in a variety of areas, are playing fair with their costs.

The on-going review has naturally resulted in a tit-for-tat war of words between ISPs and BT, which tends to cover everything from concerns over competition in the market for FTTC based superfast broadband services (here) to Vodafone’s recent allegation that BT could be raking profits of nearly £5bn more than the level that Ofcom is claimed to deem acceptable (here). All of which BT itself disputes.

It’s in this context that the latest spat has erupted after TalkTalk claimed that a submission of BT’s accounts to Ofcom’s review process allegedly revealed how the incumbent operator had used “accounting tricks” to shift around £120 million worth of unusual costs onto consumer broadband and phone lines.

According to The Telegraph, some of the costs include £21m to cover compensation claims from telephone engineers who were deafened by using 1980s line-testing equipment and an annual sum of £10m for BT’s longstanding no-compulsory-redundancy policy. As a result TalkTalk suggests that the annual cost of a single unbundled line could increase by £7.31 to £109.88 (NOTE: this looks to us like roughly what an ISP might pay if you included 20% VAT on the cost of a fully unbundled MPF line).

A BT Spokeswoman said:

“[We] published these proposed changes some months ago so we have been transparent from the start. The UK has one of the most heavily regulated telecoms markets in the world and our wholesale prices are amongst the lowest in Europe.

There is intense competition at the retail level, something TalkTalk recognise themselves. Consumers have been getting fantastic value for money with broadband prices falling whilst speeds have been rising.”

TalkTalk has once again called upon Ofcom to introduce “robust monopoly regulation, to ensure competition and protect consumers from unfair increases to their cost of living“. In saying that the ISP is clearly being mindful of the Government’s strong focus on tackling rising utility bills, although ironically a lot of the new industry rules and regulations have also helped to push prices higher (e.g. requiring big ISPs to introduce network-level censorship of adult websites and tackling piracy etc.).

Unfortunately we haven’t been able to gain access to the full details of these accounts and so it’s difficult to know quite where the truth resides. Never the less Ofcom currently expects to rule on the matter next Spring 2014.

UPDATE 28th November 2013

We think this document might be the one that the ISPs are focusing upon above.