BT pensions deficit widens to £7bn

A BT infinity router. The company has revealed that its pension deficit has swollen to �7billion.

A BT infinity router. The company has revealed that its pension deficit has swollen to �7billion. - Credit: PA

BT today revealed that its pension deficit has swollen to £7billion as it agreed a 16-year recovery plan that will include £2bn in payments over the next three years.

The deficit for the scheme, which has 300,000 members, around 40,000 of them current employees, has grown from £3.9bn in 2011, with BT attributing the widening gap to the low interest environment.

The disclosure came as BT also unveiled plans to roll out “ultrafast” broadband delivering internet speeds six times faster than those currently available, starting from the 2016-17 period.

Its “” technology, which will be tested at two pilot locations this summer – Huntingdon, Cambridgeshire and Gosforth, Newcastle, with around 4,000 homes and business able to participate – will help deliver a service of up to 500Mbps to most of the UK within a decade, BT said. Currently BT’s “superfast” fibre network delivers speeds of up to 80Mbps.

The pilots will build on recent tests at BT’s world renowned innovation centre at Adastral Park, at Martlesham Heath, near Ipswich.

These have shown that has the potential to deliver significant speed increases from existing and new fibre street cabinets as well as from other points closer to the customer. This is an important development as it means the technology can be deployed in a more efficient and rapid manner than previously thought.

BT is likely to deploy from various points in the network, with the pilots allowing it to assess various roll out options. It is also planning to develop a premium fibre broadband service for those residential and business customers who want even faster broadband, of up to 1Gbps.

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BT is currently expanding the reach of its fibre network by working with the public sector across the UK. Its network already passes almost 22 million premises – around three quarters of the UK – and is open to all communications providers on an equal basis. Its expansion will help the UK to boast 95 per cent coverage for fibre broadband within the next few years.

In a trading update, BT also said pre-tax profits for the third quarter to the end of December were £814million, up 13% from the same period a year before and ahead of expectations.

BT said it added 119,000 broadband customers during the period. Its offering has been bolstered by the offer of free Premier League football, as it vies for business against rivals such as Sky and TalkTalk.

Analyst Paul Kavanagh questioned whether the pensions charge would impact on the telecoms giant’s sports ambitions, as the round of bidding for the next set of Premier League TV rights gets under way.

Meanwhile the group said it was making “good progress” in its plan to buy the EE mobile phone network for £12.5bn.

BT’s previous pension deficit announcement in 2011 saw £2.6bn paid off in the first three years, representing 67% of the shortfall.

The latest plan to pay off £2bn in the first three years represents 29% of the larger sum, with further instalments planned through to 2030.

Finance director Tony Chanmugam said: “We remain focused on our prudent financial policy of investing in our business, reducing net debt, supporting the pension fund and paying progressive dividends.”

Chief executive Gavin Patterson said the 16-year recovery plan reflected “the strength and sustainability of our future cash flow generation”.

Mr Patterson also revealed that its roll-out of superfast fibre broadband, which can also be used by other providers,- now covered around three quarters of the UK.

He denied that the growth in the pension deficit would impact on BT’s sports ambitions. Mr Patterson said: “It won’t. The payments that we are making in to the scheme in the next three years are less than the payments we have made in the last three years.”

Mr Patterson pointed to the fact that the level of the deficit was affected by ultra-low interest rates. He added: “I would hope that at some point in the next 16 years, rates reach more long-term norms again. These are slightly unusual times.”

Mr Chanmugam said: “Our financial plans have been based on this level of pension deficit payment and it is not going to impact because it is very much in line with financial plans.”

Meanwhile, Mr Patterson reiterated that BT is planning to launch consumer mobile phone services before the end of the financial year - which finishes on March 31 - but that the way this was done would be affected by the EE deal.

BT already offers mobile to business customers through a wholesale tie-up with the EE network and had been planning the wider roll-out before its takeover plans emerged, which should mean it will own the company.

Mr Patterson said: “Clearly the fact that we are hoping to conclude a deal with EE will have an impact on our thinking of how to really drive that launch.”

There was no announcement on the merger today but it is understood the period of exclusive talks will expire in the next couple of weeks.

Mr Patterson added that BT was aware of both the risks and drawbacks of spending big money on Premier League football as it gears up for the latest rights auction.

It is currently in the midst of a £738 million three-year deal to show 38 games a season, which has muscled in on Sky’s turf. It has also bought Champions League rights for three years, starting from this autumn, for £897 million.

Mr Patterson said: “We are very clear on our strategy. Clearly there are risks. We are very conscious of those risks.

“We are also very clear on how sport, in particular the Premier League, can add value to our proposition for customers. We are very, very clear in what we are going for and what we want but we won’t overpay.”