Yahoo Finance Brexit Pension Gap Stalls BT Openreach Deal
Rising pension deficits in the wake of the UK's vote to leave the European Union (EU) are hampering efforts by BT to conclude talks with its regulator over the future of its broadband infrastructure arm.
Sky News has learnt that BT's yawning pension deficit, which stood at £9.9bn at the end of 2015, is the most significant unresolved issue as the telecoms giant attempts to reach agreement with Ofcom.
Falling equities, sterling and bond yields, as well as the prospect of an imminent interest rate cut by the Bank of England, are understood to have complicated attempts by BT in recent weeks to present a satisfactory pension proposal to Ofcom.
The issue is not peculiar to BT: figures published this month showed that the total shortfall in private sector pension schemes had ballooned from £294bn at the end of May to £383.6bn a month later.
Sources said on Sunday that BT had made a legally binding offer to provide Openreach with greater independence and accountability, but that key details relating to the vast pension scheme and future governance still required the regulator's agreement.
The company has fiercely resisted the idea that it should relinquish ownership of Openreach, despite persistent calls from rivals including Sky plc (LSE: BSY.L - news) , the owner of Sky News.
Among the options discussed in recent weeks is for BT to establish Openreach as a legally incorporated subsidiary which remains 100%-owned by the FTSE-100 group.
However, this is understood not to be BT's preferred choice for resolving Openreach's future because it would restrict pension trustees' access to the unit's cashflows, potentially triggering additional costs.
Ofcom's latest proposals will be published on Tuesday, just over a year after it floated the prospect of Openreach being formally separated from BT.
That possibility was revived last week when a committee of MPs accused BT of "significantly underinvesting" in Openreach, which provides access to competitors but has been dogged by poor customer service performance.
The Culture, Media and Sport Select Committee said BT should be broken up unless it put its "house in order".
Sources said that BT had presented a plan to the regulator in the last few weeks which would involve a slate of Openreach directors being appointed by the company following consultation with Ofcom.
A majority of the new board, which would have control over Openreach's budget and strategy, would be regarded as being independent under BT's proposal, although discussions are said to have been ongoing about that issue in recent days.
Reiterating earlier commitments, BT has also promised to invest an additional £6bn in Openreach over a three-year period to improve the coverage of its ultrafast fibre and mobile broadband networks.
A source close to BT said it was a "substantial" commitment to plough capital into UK infrastructure at a time when the result of the EU referendum was casting doubt on the willingness of international investors to do the same.
BT has said that it is recruiting thousands of additional engineers, with other jobs being 'reshored' from overseas to the UK.
Its arguments have, however, consistently been rejected by rivals.
In a ten-point plan published earlier this year by Sky, TalkTalk and Vodafone, the companies called for "robust and swift' reform of Openreach, including a demand for Openreach to be established as a separate legal entity.
BT declined to comment, while Ofcom said it would outline its proposals on Tuesday.
