BT suffers rebuff from Competition Commission
BT has been rebuffed for the third time, this time by the UK’s Competition Commission, in its efforts to compel its competitors to share in the costs of lowering its £3bn pension scheme deficit through higher charges for their use of its phone lines.
The telecoms operator’s pension scheme – the UK’s largest – has periodically been a major driver of its valuation in recent years, with its share price rising and falling on news that has affected the size of the deficit. In the 2008-09 financial year, the company was forced to slash its dividend in order to pay for a significant increase in contributions to make up the shortfall, which stood at roughly £9bn as at the end of 2008.
In a ruling quietly issued last week, the commission has decided that BT’s regulator, Ofcom, correctly barred the company from including deficit repair charges from the cost base that determines how much BT can charge competitors for use of its line for wholesale broadband access in parts of the country where competition is limited.
According to a person with knowledge of the matter, a ruling in BT’s favour would have been worth in the “low tens of millions of pounds” to BT Openreach, the subsidiary that provides rivals with access to BT’s network.
BT had asked the commission to rule that Ofcom, which considered the matter twice, had made an error with its regulatory judgment. Sky and Talk Talk, rivals that would have been adversely affected had the regulator ruled in favour of BT, had acted as interveners. The two companies retained John Ralfe, an independent pensions consultant, to present their case.
Mr Ralfe presented evidence showing that the scale of the pension shortfall stemmed from commercial decisions taken by BT and that its shareholders, not its competitors, should bear the costs. Mr Ralfe had argued that BT had a pension shortfall at privatisation in 1984 that was very significant and that would have been taken into account by investors purchasing its shares. Also, for many years, BT failed to make sufficient payments to its scheme, he said.
In its judgment in 2011, Ofcom ruled that the company’s wholesale charges should not take account of BT’s pension deficit repair payments. “The alternative – including deficit repair payments in regulated prices – could potentially lead to those prices being set at levels which do not accurately reflect the relevant underlying costs,” said Ofcom. “It would also be inconsistent with the basis on which BT’s prices have been regulated since the company’s privatisation.”
Sky and TalkTalk declined to comment on the ruling of last week. On Friday, in response to the latest ruling, BT said the decision was “disappointing” and that the company would be “considering its position”.
“Although the Competition Commission agreed with BT on a number of points, it ultimately concluded that Ofcom had not erred in how it applied its regulatory judgment,” a BT spokesman said.