Pension row fears see BT shares fall

BT shares fell sharply last night on fears of a lengthy row over its record £9bn pension scheme black hole.

The concerns overshadowed solid third-quarter results and sent its shares to a six-month low yesterday. They closed the day down nearly nine per cent, a fall of 11.5p to 120p.

BT used its third-quarter results to announce a long-awaited triennial pension evaluation and said it would implement a 17-year scheme to fund its pension deficit.

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Under the plan, BT will continue to make deficit payments of 525m a year for three years, rising to 533m in real terms for the following 14 years.

It said the plan would have to be submitted to the pensions regulator for review. The regulator has already indicated it has "substantial concerns" with certain features of the agreement.

Chief executive Ian Livingston said the regulator would continue to look at the plan and could then decide to refer it to an independent panel and said the whole process could take a "very, very long time" to settle.

Mr Livingston declined to say what concerns the regulator had.

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"This is a prudent valuation and a recovery plan which re-affirms BT's commitment to meeting its pension obligations," he said.

The pension news overshadowed otherwise solid results which showed that the stringent cost cuts introduced by Mr Livingston are taking effect, particularly at the key Global Services division.

Analysts at JP Morgan said the results could lead to slight upgrades for 2010 market forecasts, but they said the pension settlement raised "more concerns than it settles".

Britain's biggest fixed-line telecoms provider has been on a recovery footing since it posted two profit warnings at its key Global Services division, taking out costs and restructuring.

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Revenues were down four per cent at 5.2bn, while core earnings were up 11 per cent to 1.44bn

The pension deficit, based on a triennial valuation at the end of 2008, is the biggest ever recorded by a UK private company.

And although a private sector scheme, it has unprecedented protection that would see the taxpayer pay up should BT go bust under a guarantee made by the Government when BT was privatised in 1984.

BT said it had agreed a "prudent" funding plan with trustees, which was secured just a month ahead of a March 31 deadline.

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Rod Kent, chairman of the BT pension scheme trustees, said there had been "exhaustive" efforts over the last 18 months to reach the funding milestone at a time of unprecedented financial turbulence. He added the agreement "secures significant additional support" for the scheme's 340,000 members.

Despite the Pensions Regulator hurdle, the Communication Workers Union welcomed news of the funding deal for BT staff, who have suffered a year of pay freezes and massive job cuts.

Andy Kerr, deputy general secretary of the union, said: "Last year was a really tough one for staff in BT. The negotiated changes to the pension scheme have brought significant savings to BT while securing the long-term future of the pension scheme for our members."

Kcom in management deal with telecoms giant

BT has signed a "transforma-tional deal" with Hull-based telecoms group KCom to take over the management of KCom's network assets.

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Analysts say the deal will save KCom between 70m to 80m a year.

KCom has a 3,000km national broadband fibre network linking 25 towns and cities, including Newcastle, Edinburgh, Manchester, Bristol and London.

Under the deal, KCom still owns the network but pays BT a management fee to maintain and, if necessary, upgrade it.

KCom no longer has to worry about the cost of maintaining its national network, thus allowing it to cut overheads and cut debt. It also allows KCom to extend its geographic reach by giving it access to BT's national network, allowing it to serve customers anywhere in the UK.

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KCom's executive chairman Bill Halbert said: "Say a customer needed reach in Aberdeen, St Ives and Aberystwyth. We would have had to go to a third party, which doesn't make commercial sense. This deal gives us a national network."

BT described the tie-up as "one of the most exciting developments to happen in the UK fixed line communications market for some time".