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

Wednesday, November 27th, 2013 (8:51 am) - Score 1,662

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.

Leave a Comment
9 Responses
  1. Avatar bob says:

    It is the reason we should have proper separation of Openreach from BT. The simplest way to do this would be to set up Openreach as a separate wholly owned BT company. This means it has its own board and own accounts totally separated from the rest of the BT group. BT then is just a customer of Openreach in the same manner as any other company.

  2. Avatar Rupees Burdoch says:

    Ofcom must take strong action in order to allow Sky to continue providing affordable broadband to its loyal customers. It’s unfair for BT to abuse their monopoly to harm the interests of consumers.

  3. Avatar Darren says:

    No to sky.

  4. Avatar J Ritchie says:

    I agree with first comment. BT are abusing the position they have.This should have been sorted out by now. Goverment should have seen this coming im sure they was warned by somone.Not suprized that BT seam to be ripping off customers as they are all about profits in my view. Should only have UK call centres.

    Big business and politics are all about money and power, wont change anytime soon.

    1. Avatar bob says:

      Whilst BT Openreach remain just a business unit of BT it is easy to manipulate cost in spite of there being a firewall between BT Openreach and the rest of the group

      The simplest approach is to just split BT Openreach of as a wholly owned BT company with its own directors and p&l

      Whilst it is a part of the main BT group you have a clear conflict of interests

  5. Avatar NGA for all says:

    BT’s Groups behaviour in the rural NGA programme, it’s over reliance on NDAs and confidentiality agreements, even with tiny communities supports the case for clearer separation rules. Breeches of promises made on matched capital investment, availability of rollout data, backing off any meaningful commitment to FTTP are just symptoms of BT Group acting for the shortest of terms, to the detriment of what could be a truly worldclass Openreach.

    It took Ofcom 7 years to tackle Ethernet pricing abuse and fine BT £90+ million.

    BT has a right and discretion to recover its costs, but this is tied to the concept of an ‘efficient’ operator, something which Ofcom has never really defined. The capital employed for wholesale broadband network is mostly a function of capitalised labour, not incremental kit costs. This suggests that the very notion of being best means how and what costs are allocated to Broadband must be transparent to a Government investment £1.2bn capital(real cash) in rural areas.

    Creating and sustaining best broadband in Europe, demands a more visibly independent role for Openreach and much diminished role for BT Group given the findings of the NAO and PAC.

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