Crossed lines over BT pension scheme

The telecoms giant's latest plans to solve its pension deficit have been rejected by competition authorities.

by Michael Northcott
Last Updated: 19 Aug 2013

It appears BT and the Competition Commission are not getting through to one another, after the latter blocked BT’s plans to supplement the cost of its pension fund by charging competitors higher rates to use its phone line network. The decision is a massive blow to the company, which has the largest pension scheme in the UK (with a liability of £32bn) and a deficit of around £3bn. That’s a pretty big bill…

But BT has been having a rough ride in its efforts to shore up enough cash to support the fund: regulators have consistently rejected proposals to charge competitors more to raise the money. In recent years BT has been forced to call on shareholders to bear the brunt of the pension troubles. In 2008-2009, the company slashed its dividend and diverted the cash to make sure that due pension payments could actually be made. This time around, Ofcom says raising prices because of its pension concerns would mean BT was in contravention with the system that has regulated its prices since privatisation. 

Last week, Ofcom rejected the higher-charges scheme, and the Competition Commission today upheld the decision, so that’s yet another door closed to the company’s future pension strategy. But BT points to a healthy cash flow of £2bn (and recent commitments to shareholders to increase the dividend) as evidence that the pensions situation is under control. Whilst the extra fees from raising the rates on its network would have been useful to the firm, it would only have generated a few tens of millions of pounds – hardly enough to get rid of the pension deficit once and for all.

To keep shareholders from hanging up, though, BT will need to maintain headway on the pensions fund and make sure there is nothing for them to get jittery about. Sky and TalkTalk would be only too happy to watch BT's situation go pear-shaped...

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