Should BT’s Pensions Deficit be Allowed to Raise Regulated Prices?

March 2, 2010

(by Bruce Lyons)  The perennial question in the regulation of monopoly prices is: what cost increases should a typically ill-informed regulator allow to be passed through to customers?  BT wants to be able to recover at least part of its £8.8b pensions deficit by getting Ofcom to raise the wholesale access prices it can charge downstream rivals for broadband and telephone lines.  In practice, this would raise the ‘X’ factor in the standard RPI + X regulatory formula.*  BT claims that changes in government pensions policy and increased longevity lie outside its control. It points out that other businesses are also affected.  BT’s regulatory contract currently takes no account of either pension deficit payments or previous pension holidays.  Ofcom responded by consulting with ‘stakeholders’, thus implying they saw possible merit in BT’s case. Read the rest of this entry »