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Ofcom Proposes NOT to Link BT Pensions to Wholesale Broadband Charges

Posted: 23rd Jul, 2010 By: MarkJ
ofcom uk broadband and bt pension deficitOfcom has today proposed NOT to take BT's massive £9bn pension deficit into account when setting regulated wholesale charges for the operators broadband and phone services. It was feared that the regulator could have ruled differently, which might have resulted in higher charges for ISPs and thus price hikes for UK consumers.

At present Ofcom does take into account any ongoing pension service costs, as reported in BT’s statutory accounts, but excludes payments made by BT in respect of any pension fund deficit. However, in its second consultation, the regulator found no "compelling evidence" to justify a change in approach.

Ofcom said that predictability and consistency were important for creating an environment that BT and its wholesale customers are willing and able to invest in. The last thing ISPs need right now is even more costs being loaded onto their shoulders, so this is good news, at least for them.

Unfortunately BT still has a huge deficit to deal with, which is simply caused by many more employees taking money out than paying in. The operator does have a recovery plan in place that will aim to pay £500-600m into clearing the deficit each year, though some fear that this will not be enough.

Back in the 1980's, when BT became a privatised company, the then Conservative Party agreed to support the operator (financially) if any problems like this occurred. Unsurprisingly, given that the Conservatives are now back in power (alongside the LibDems), BT has launched a legal challenge to demand assistance.

The current economic crisis suggests that BT's legal challenge will not be an easy fight, especially with the lack of public money. However it might give BT a useful stick to prod the government with if say, for example, they wanted a nice share of that "super-fast" broadband fund. This is of course merely speculation.

In any case BT haven't had it easy of late, what with the recent threat of strikes and spending £2.5bn to rollout next generation broadband services to 66% of the UK population by 2015. Being strangled by your own firms pension deficit certainly doesn't help matters but then neither would lumping that cost onto your customers, which had it happened would have made them even less competitive. A final statement is expected before the end of 2010.
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