ISPs may pay dearly for hole in BT's pension fund

Competitors livid at prospect of BT raising wholesale charges to make up for shortfall

BT's pension fund deficit provokes towering inferno from competitors

BT's competitors are fuming over the likely result of a consultation launched by UK communications regulator Ofcom into how BT's pension fund deficit could affect wholesale charges to ISPs.

There is speculation that BT will be allowed to increase wholesale charges for phone lines and broadband connections to other ISPs by four per cent; an initial consultation seemed to allow this.

The second consultation was launched in December.

Network infrastructure arm Openreach charges ISPs for wholesale services, which allows them to use the BT infrastructure to reach their customers.

The consultation, which was launched by Ofcom to "promote a broad debate", is due to close today, with BT's response expected afterwards.

ISPs including Cable &Wireless and Carphone Warehouse submitted evidence to the consultation, with C&W quoted in the Financial Times yesterday as saying: "Research produced by independent pensions adviser John Ralfe offered overwhelming ... evidence to support the view that BT has been the sole architect of the entire deficit.”

Whether BT's alleged negligence in managing its pensions deficit will mean it is prevented from partially plugging the hole through wholesale charge increases to other ISPs remains to be seen.

BT recently announced third-quarter pre-tax profits of £209m, up from last year's figure of £81m, on revenue down four per cent at £5.2bn from 2008's £5.4bn.

Those financial figures were overshadowed by the hole in BT's pension scheme - £9bn as of 31 December 2008. That valuation and BT's 17-year recovery plan, which will balance the deficit, is currently being reviewed by the Pensions Regulator.

BT said: "It is unsurprising that our rivals are lobbying on this issue but their arguments are flawed. There is a good regulatory precedent from other industries for BT to be able to recover an appropriate share of its pension costs through regulated charges and we have made that case to Ofcom."

"BT's [pension] scheme has been well managed and administered by an independent board of Trustees and supported by one of the most highly respected fund managers. It has performed consistently in-line or above benchmark schemes over a number of years and the Trustees have undertaken consistently prudent valuations, as required by law.

"BT has agreed to make additional contributions of billions of pounds to fund this obligation and has in recent years advanced some of its deficit contributions. The investment strategy is proactively monitored and changed when appropriate. The increase in the deficit is largely down to the stock market crash and new assumptions about life expectancy".