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Form an orderly queue, people: 31,000 BT staff go to Openreach in October

Anonymous Coward

Chinese rubble

So is this effectively an admission by BT that the Chinese Walls were nothing but rubble ?

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Re: Chinese rubble

>So is this effectively an admission by BT that the Chinese Walls were nothing but rubblepaper ?

FTFY

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Anonymous Coward

I reckon someone's just realised it's a great way to change the terms of their pension agreements in the small print.

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Anonymous Coward

Came here to say this. The pension situation at BT has not been sustainable for 25 years, and part of the problem is down to the staff and unions thinking that it was sustainable. Wake up, people.

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Anonymous Coward

No it's not. BT stopped paying into it in the 90's creating a 12-14bn deficit. Better pension = worse pay, you pay for your pension by not earning the same as someone else so it's not free and it's not the staffs fault either.

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Anonymous Coward

> BT stopped paying into it in the 90's creating a 12-14bn deficit.

Net pension deficit 31/03/2017 was "only" 9bn (vs 6.4bn 31/03/2016).

Your higher figure probably dates from before the 2014 plan where they stated they would pay 2bn over three years.

But I'm no actuarial expert !

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Anonymous Coward

For Reference, Jan 2018,

https://www.theguardian.com/business/2018/jan/28/bt-retirement-fund-managers-get-f-in-pensionology

"Second, and specific to BT, during the 1990s the prophets running the pension scheme believed it to be so well-funded that the company stopped making contributions."

With regards to value "Hanging over the trading numbers, though, is an estimated £14bn pension deficit."

I don't think BT want to come out and say what the actual numbers are, it would be share price suicide and it also makes paying dividends difficult.

Net Profit After Taxes 16/17/18 £2,466m £1,908m £2,032m

http://citywire.co.uk/money/share-prices-and-performance/share-factsheet.aspx?InstrumentID=515

Dividend,

https://www.btplc.com/Sharesandperformance/Dividends/Dividends.htm

Where did they get the 2bn to put back in each year unless I'm not understanding this right?

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Plus one to that. Whenever a company uses "started consultation with " in it's statement that usually means job losses.

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Devil

On the corporate Brightside.. profits go up and they can reduce funding of the pension program.

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Anonymous Coward

Yay, everybody wins.

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"BT stopped paying into it in the 90's creating a 12-14bn deficit."

No. This has been explained here many times before.

The IR (as then was) stopped BT paying into the pension scheme. This was because the projections at that time were that there was sufficient money to meet obligations. Continuing to pay in would have been considered tax avoidance by the IR.

Then two things happened.

1. Gordon Brown stopped tax relief on dividends paid on shares held in pension funds. That meant that the funds wouldn't experience the growth on which the projections were based.

2. The great house price bubble, steadfastly ignored by the BoE when setting interest rates (on the orders of the said Gordon Brown), led to the crash of 2007. Since then interest rates fell to near negligible and have stayed there. Pension projections depend on annuity rates. Annuity rates depend on interest rates. The annuity rates on which the '90s projections were based have been hopelessly wrong for more than a decade and don't seem likely to improve any time soon.

The IR's calculations in the 90s didn't take these changes into account. Nobody there had read the small print at the bottom on any financial product to the effect that past performance is no indication of what will happen. In consequence there's been a big hole in the pension scheme ever since entirely as a result of the payment holiday forced onto BT not allowing for HMG's capacity for screwing up the UK finances for a couple of decades between then and now and on into the foreseeable future.

Not that I expect an explanation here will prevent the marginally informed bleating about it all being BT's fault.

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"Continuing to pay in would have been considered tax avoidance by the IR."

Mea culpa That should have been tax evasion which is illegal.

Odd that commentards are prepared to condemn corporations for tax avoidance which is legal and yet condemn BT for not evading tax.

BTW what's the point of giving 10 minutes for edits when the post doesn't appear for a lot longer than that?

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> BTW what's the point of giving 10 minutes for edits when the post doesn't appear for a lot longer than that?

They appear in 'my posts' immediately so you can always check there.

Thanks for the explanation about the IR enforced payment holiday - I hadn't heard that one before. I rather suspect though that the change in tax relief dealt the main blow - the low interest rates making it impossible to recover the situation (in a meaningful period of time).

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Anonymous Coward

"I don't think BT want to come out and say what the actual numbers are, it would be share price suicide and it also makes paying dividends difficult."

The trouble is that any financial analyst worth their salt will take into account pension risks when building a valuation model for a company.

So the financial analyst will do some digging of their own, and some data is also available on platforms such as Reuters and Bloomberg (which, in terms of pensions, ultimately comes from the company's accounts).

So to take an example from one such platform, there is an item called "Net Asset / Liability Recognized on Balance Sheet (Pension)" which is described as "This data item represents the net value related to pension plans recognized on the Company's Balance Sheet.".

And if you look at BT on that platform, 12months to March 2016 shows a figure of approx (-6bn) and 12 months March 2017 shows a figure of approx (-9bn)

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Anonymous Coward

"I don't think BT want to come out and say what the actual numbers are, it would be share price suicide and it also makes paying dividends difficult."

It should also be noted that the very reason (well, one of the big reasons) the pension has not caused "share price suicide" is because BT continues to pay dividends.

Professional portfolio managers will often have remits which constrain what they can invest in.

So, for example, someone managing investments relating to a company's pension scheme might have a conservative mandate (e.g. investment-grade bonds only, FTSE100 only). You might then be further restricted if you are given a mandate of "income" rather than "growth", which would restrict you to dividend paying shares (and/or bonds).

As well as those managing specific portfolios, you also have the whole industry of funds (active and passive) which any "joe" can buy ... those funds will have specific mandates too which constrain them.

As a result, given you have a limited shopping list, companies such as BT can be often seen as one of those "back of the cupboard" buy and forget companies.

If, for example, BT dropped out of the FTSE100, or their ability to pay dividends in a reasonably sustainable manner was called into question, then *THAT* is when you would see the *REAL* "suicide", because all the professional managers would start pulling out very swiftly indeed as they would no longer be permitted to hold BT shares under their mandate.

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openreach and the pensions strawman

If the pensions liabilities at Openreach were remotely as onorous as BT makes out, BT would be falling over itself to get rid of the business.

The reality is that the same arguments were raised against splitting by New Zealand's incumbent. After the great breakup into Spark(telco) and Chorus(linesco), the lines side went into overdrive and any pensions liabilities are a ghost of a memory as it's got more business that it can cope with.

On the other hand the former incumbent monopoly telco is a ghost of its former self which isn't even in the top 3 voice line providers anymore, let alone being the dominant player.

One of the other myths that got punctured within weeks of the breakup was that a separated lines company would have trouble raising finance. Chorus got offered better financial rates after the split whilst Spark started having to pay higher interest rates.

Given what happened in New Zealand - where the incumbent attempted to model the market along the same lines as BT/Openreach in response to the regulators stepping in and ended up being cleanly cleaved along those lines(*), you can understand WHY BT Group is terrified of what would happen if Openreach _and the lines side_ is split away from the rest of the company. It would lose both its cash cow and its means of throttling competition.

(*) Decades of legal action was headed off at the pass in New Zealand by the simple expedient of making any further broadband rollout funding conditional on 100% separation into 2 companies with completely separate share issues, boards of directors, offices, etc etc etc.

The resolution to split was passed in record time and shareholders of the exiting company were issued shares in both new companies - many sold off their Chorus shares at 30-50% below issue value on day 1 thanks to months of negative publicity and then spent the next five years kicking themselves as the shares doubled their issue value in the first year. Those who hoovered up those cut rate shares (who were the ones making all the negative statements) made out like bandits.

For all the skullduggery on share trading, New Zealand's telco market _now_ is a great example of a transition of how to do to things RIGHT - whereas it used to be held up worldwide as the best example of how NOT to privatise your telco.

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"BT stopped paying into it in the 90's creating a 12-14bn deficit."

BT stopped paying into it _by government order_ because (on paper) it was massively in profit. Accountants suffering rectocranial inversions and not looking at workforces aging out, etc etc.

Most of that pension liability is in external plant division (openeach), but it doesn't actually matter, as I've detailed in another post about what happened in New Zealand, which had a very similar situation and solved it by actually splitting the companies (the problem solved itself once the creative accounting and anticompetitive hand around the throat were removed from their version of Openreach)

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Anonymous Coward

But I'm no actuarial expert !

Most of the actuarial experts probably aren't good at facts and arithmetic either, but I bet they're paid more than most readers here. That's how actuaries get to tell their clients that 2+2 = 5 (or whatever the client would like 2+2 to be). Maybe it's a bit like being a corporate auditor.

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Re: But I'm no actuarial expert !

"Most of the actuarial experts probably aren't good at facts and arithmetic either"

Actuaries are extremely good at processing facts and past statistics.

What they're not good at is working outside the lines they're not permitted to work outside (in the case of BT, allowing for changes in investment return rates and the looming probability of a large tranche of retirements that BT knew was coming where there wasn't 1:1 replacement (due to technology advances) as the IR actuaries were forced to assume.

I'm pretty sure that BT could have rearranged things so that the pension funds wouldn't have been seen as tax evasion, but IIRC the government was already gunning for them and it would have been easier to roll over and play dead. After all, the money was going out of the company either way so it didn't affect anyone's bonus at the time.

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Anonymous Coward

Re: But I'm no actuarial expert !

"Actuaries are extremely good at processing facts and past statistics."

That's the kind of thing people used to say about corporate auditors and accountants, various of which are now exposed as charlatans with about as much reliability as an estate agent selling hot London property. "Modern" actuaries are heading down the same road.

"I'm pretty sure that BT could have rearranged things so that the pension funds wouldn't have been seen as tax evasion"

BT were far from the only company playing the pension holiday game; blaming the tax laws is misdirection at best. Does the name Adair Turner mean anything in this context? It should.

As Director General of the CBI in the relevant period, Adair Turner was leading the CBI's campaign for occupational pension schemes to take "contribution holidays", *regardless* of what the employer's tax position might be.

Subsequently, Baron Turner (as he is now) may have changed his tune on pension holidays and in particular Brown's role, see e.g. in 2005 when as chair of the UK Pensions Commission he told the ft that

"The pros and cons of [Brown's] removal of advanced corporation tax in 1997 can be debated: a case can be made that it created greater equivalence of tax treatment between retained and distributed earnings.

In retrospect however it was one among a large number of measures which increased the strain on Defined Benefit schemes - the Lawson tax changes of the mid-80s, the Lamont reduction in the dividend tax credit in 1993, the extra regulatory requirement - indexation - and the contribution holidays and early retirement packages. All were based on assumptions about future equity returns which, in retrospect, were irrational."

Very irrational indeed. Same way as 2+2 doesn't rationally make 5. But the "success" of the UK's pension sector (for the players, not the pensioners) has depended on such irrationalities for many years. Same applies to the US's finance sector: remember Alan Greenspan in 1996 talking about "irrational exuberance" (during the early stages of the dot.con bubble, when computers weren't all made in China and a decade or so before Twitbook was even a thing)?

Interesting times.

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Anonymous Coward

Re: "Actuaries are extremely good at processing facts and past statistics."

Think of a number. Any number. That's BT's pension deficit, that is.

"BT has slashed its pension liabilities by £1.8bn in three months through deficit recovery contributions (DRCs) and a change to the scheme's discount rate.

As of 30 June 2018, the scheme had an IAS 19 accounting deficit of £4.6bn gross of tax (or £3.9bn net of tax), down from £6.4bn (£5.3bn) as at 31 March 2018.

The reduction is despite a £500m "error" in the calculation of liabilities by the scheme's actuary Willis Towers Watson. In the company's March financial update, the consultancy had erroneously omitted the figure, leading to an understatement of the liabilities."

from an article published today at

https://www.professionalpensions.com/professional-pensions/news/3036669/bt-pension-deficit-plummets-gbp18bn-despite-actuarys-gbp500m-error

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Dates?

switch off copper-based phone networks by 2025 and go full fibre by 2033

So what do we do between 2025 and 2033? Use mobiles?

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Anonymous Coward

Re: Dates?

Assume it should have said "start to switch off the legacy outdated 'up to' sweated copper/alu carcass by 2025".

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Re: Dates?

Mobiles? No, tin cans & pieces of string*

.

*tin cans not included

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Joke

Re: Dates?

We'll all be on 6G by that time, so expect 10Gbps to the handset by then, rendering fibre truly redundant except for the exceedingly fat pipes needed to every base station, of which there will be about two dozen per 100 yards of street.

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Re: Dates?

Why actually have a date by which...copper - a perfectly good way to carry signals - must be 'switched off'?

Cost benefit says run that copper until it is no longer worth maintaining.

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I wish OR well

Are they just loading up the overheads to make Openreach unprofitable without passing increased costs onto other ISPs.

My new BT (Retail) Account team have been very active and attentive recently. New blood from EE are tearing up the old school culture. But I just told them we are cancelling all remaining Retail services this year and sighted enough reasons that they did not fight back.

I wish OR well. Retail can reap the seeds they sowed over the decades.

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Anonymous Coward

Re: I wish OR well

My new BT (Retail) Account team

You've got an account team? Lucky b*****d. We've got hundreds of lines across our estate and no-one from BT will talk to us.

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Re: I wish OR well

You can estimate the effectiveness of support from your BT "support team" by their ranking in the Football world cup. There effectiveness at IT support is roughly two places below that.

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...step 1 - transfer all the telephone sanitisers and corporate hairdressers into this organisation.

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Step 2.

Pay the pension fund from the money tree... before Autumn.

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Re: Step 2.

No.

Step two is Launch.

Step three is Arrive at a mouse infested planet and create a pension fund from leaves.

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WTF?

Anyone from BT got time...

.... to explain what possible advantage there is to the market, or even BT, in having a legal seperation, but not actually making OR fully independant of BT?

As far as I can see, the board of BT expect to be able to retain a heavy influence over OR, or there's no commercial advantage to them in not spinning it off. I also can't understand the regulators view in seperation being preferable to spin off. What real world benefits accrue to the cutomer?

I'm genuinely confused at the thinking and hoping there's an insider with enough context to explain please?

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Re: Anyone from BT got time...

Our company works like the proposal, it seems - we are 100% fully owned by the parent company, but have our own board and are fully independent, so we can make decisions (any decisions) without having to go to the parent company for approval.

The only thing that bounds us to the parent company is money - wages are paid to staff by the parent company, and our yearly budget is set by them too, which requires higher-up board members to make a case for such-and-such/fully justify every year.

So if it's going to follow the same, Openreach will be fully independent and no the BT board won't have a say in any decisions beyond having a person or two on the board of Openreach (if that). BT will be handing out the yearly budget though, with Openreach having to justify the planned expenditure every time it comes up.

So it should work out OK without having the hassle of forcing BT to fully spin the company out.

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Re: Anyone from BT got time...

"what possible advantage there is to the market, or even BT, in having a legal seperation, but not actually making OR fully independant of BT?"

At a guess it might have something to do with the problem of trying to launch a new business with its pro rata share of the BT pension scheme deficit.

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Re: Anyone from BT got time...

The only thing that bounds us to the parent company is money - wages are paid to staff by the parent company, and our yearly budget is set by them too

That being the case I'd have to argue the split, isn't. There's a quote often attributed to Mayer Rothschild, with many variants attributed to others: "Let me issue and control a nation's money and I care not who writes the laws".

Hopefully the above should make clear my reason for concern.

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Re: Anyone from BT got time...

"At a guess it might have something to do with the problem of trying to launch a new business with its pro rata share of the BT pension scheme deficit."

That supposed "millstone", quite simply isn't.

To explain: Once free of the dead hand of BT, Openreach is free to offer competitively-priced services and ducts to all comers - and that includes companies that are currently regarded as mortal enemies at the moment and which Openreach is effectively either forbidden from dealing with _at all_ or restricted to dealing with under the most difficult possible conditions.

That's what happened in New Zealand The effect was that Chorus switched from that model to actively getting out and hunting down wholesale customers and subsequently has more business than it can deal with. The regulated voice line sector (copper and increasingly FTTH) is only a minor part of the whole business. By being a truely neutral supplier which actually OWNS the outside plant, the company does not have any kind of anticompetitive backdoor controller able to exert influence over it.

It should noted that New Zealand opted for the clean cleaving model BECAUSE of the easily documented market abuse in the UK. Telecom NZ was trying to sell the original BT/Openreach model as an ideal solution to stave off regulator intervention due to decades of abusive monopoly behaviour which made BT look like a bunch of choirboys.

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"Ofcom identified serious failings with BT's ownership of Openreach, a subsidiary that runs Britain's entire broadband infrastructure."

Where did VM and KC go?

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Anonymous Coward

Where did VM and KC go?

I think they are telecom equivalent of the LibDems. still around but rarely mentioned (and I voted LD).

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The Art of ASCII.

WTF are 31,000 people doing? You could build Apollo with less. There really is something wrong here. Each could fancy a pigeon and the delivery would be faster. #longdistanceclara

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Anonymous Coward

Whatever happens, the only certainty is your phone, line & broadband bill will continue to rise as the greedy clueless upper mgmt continue to suck the life out of the company.

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Ofcom spotted failings

No they didn't. They spotted the fact that Openreach and BT are the same company and naturally work well together, given they're the same bloody company.

i've said it before, and got downvoted. It will happen again, but it's still true. If these other companies like sky etc want 'free rein' on the network, they need to actually bloody invest in it. BT are the only company to have built the dang thing so they get preferential treatment, I see NO issue other than ofcom being moronic

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Re: Ofcom spotted failings

Whilst I upvoted you, its not that simple.

BT is a spin off of the GPO. A government created and run organisation.

It is more or less a natural monopoly, and, as such needs regulation in the public interest.

A LOT of that legacy copper was paid for by taxpayers.

These are pretty much accepted 'facts' by BT and government.

The question has always been how to achieve regulation without taking financial responsibility.

OFCOM is the best attempt so far. It has defined, and it is largely accepted, that the openreach network of comms infrastructure should be run for profit but in the public interest.

And that mesns teh parts that ARE open to competition, - the ISPs at te far end pof that structiure, are not treated differentyly. And that inclusdes BT.

It is nonsense to say that 'BT did this' or 'BT did that' The GPO created the network, and BT extended it, took profit off it as a monopoly and invested that profit into becoming a media company. And a business services company.

It seems a reasonable position to say that if that is what BT wants to become, it should not use the profits of Openreach to do it. Openreach is the monopoly part.

Splitting it legally is a small step towards at least ensuring its decisions are taken independently of BT the media and business services company.

Full flotation as an independent entity is hopefully down the line. Although as many have pointed out, that pension fund...

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Re: Ofcom spotted failings

"If these other companies like sky etc want 'free rein' on the network, they need to actually bloody invest in it."

As long as BT owns Openreach, they CAN'T

A divested Openreach with legal protections against any one entity gaining more than 5% ownership would be possible for them to buy into or enter into joint ventures with.

The reality is that a divested Openreach would be frantically trying to sell its services to these companies (and all other comers) anyway.

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Anonymous Coward

Adastral

So how will they split the R&D that happens over in Ipswich?

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Re: Adastral

I worked there before it was called Adastral. I designed a fibre optic chip that, if BT had it now, would drop the cost of FTTH to less than annual copper maintenance. On trying to find funding in the wonderful new internal market I was told 'We are a public company now, we dont do research'.

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Re: Adastral

of course fibre is cheaper than copper.

once you install it that is. it's all the digging that costs the money - not the chips...

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Re: Adastral

@fibrefool - you dont need to dig though - pull out a couple of copper pairs and there's room down the duct for 30 fibres.

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31,000 - What do they do all day?

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Anonymous Coward

"What do they do all day?"

probably waiting for their pension and the potential voluntary scheme.

I've met a few Openreach engineers and they are really good - let down by process and management. Some though, are just waiting for the pension to kick in.

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