BT pension deficit: what should Ofcom do?

It’s probably a central tenet of regulatory theory:  The more symbolic and pointless a regulatory activity is, the more interested the public seem to be.  In the media and communications sector, this means that broadcast content adjudications by Ofcom are the talk of the town.  But more meaningful regulatory actions by Ofcom, such as the inter-carrier compensation arrangements (termination rates, wholesale rates), often pass unnoticed by the general public.

Thus Ofcom can understandably not expect a flood of responses to its consultation about BT’s pension matters.  (link: here). The big issue?  Should Ofcom change the status quo — should Ofcom in the future allow BT payments that are made to reduce its pension deficit to be included in its approved regulatory costs?  ‘Follow the money’ — my boss used to say — ‘who pays’ is the key to understanding almost any policy question.  In this case it will either be BT’s shareholders who in future years will see a reduced dividend as BT makes up its pensions deficit or end users who will ultimately bear the increased cost if it is made part of the regulatory deal.  I suppose the unions side with the shareholders.  BT has historically been a good dividend payer…

It’s a danger area for regulatory capture.  The main regulated incumbent firm — with the big PR and regulatory affairs team — is in Ofcom’s offices on a regular basis, applying pressure and presenting arguments about why cost x should be included in its allowable costs.  The retail players in the UK telecoms sector are probably opposed to any change in the status quo but I suppose will all just pass the increased cost along to their end users if they are approved by Ofcom.  And because any end user price increases are filtered out over time and are not really tied to Ofcom, the regulator’s reputation won’t really suffer.  It’s a game that no one loses… except possibly the end user.

But that’s a cynical view, I suppose.  The more realistic view is that — for all of Ofcom’s actions — BT remains the linchpin of the UK telecoms sector.  Every other firm in some way relies on BT.

It should be interesting… stay tuned…