UK regulator rejects BT price hike plan to plug £7.5 billion pension deficit

UK's regulator for communications industries (Ofcom) has turned down the telecom giant BT Group Plc's proposal to increase wholesale charges, inflicting a severe blow to its plan to plug the £7.5 billion hole in its pension scheme.

Ofcom in its ''second consultation'' on the new pricing framework for Openreach, BT's wholesale access division, published Friday said: ''at this stage, Ofcom has not received compelling evidence from stakeholders which would justify a change in approach.
 
Therefore, in this second consultation, Ofcom proposes that the current approach to the treatment of BT's pension costs be maintained.''

This follows the ''first consultation'' which came out in December 2009, in which Ofcom had set out the main issues regarding the regulatory treatment of pension costs and invited stakeholders' comments on the proposed options.

Ofcom sets the prices that Openreach can charge other communications providers to deliver services to consumers. Regulatory controls also apply to certain other services provided by BT wholesale such as leased lines.

Further to the consultation, Ofcom set out three proposals in relation to BT's pension costs which would maintain regulatory certainty and consistency.

Deficit repair payments and pension holidays are currently not considered when Ofcom sets BT's regulated charges. The regulator does not propose to change this as the alternative could lead to fluctuations in BT's wholesale prices.

Ongoing service costs, which Ofcom includes in its regulated charges from BT's reported statutory accounts, are also not to be changed in order to provide consistency and certainty for stakeholders.