'

EC orders BT to hand over £16.6m

BT must put money into the UK's pension-protection fund, after the European Commission finds a legacy exemption is 'partially unlawful'

The European Commission has ordered BT to pay £16.6m into the UK government's pension-guarantee scheme, saying the company's exemption from the scheme constitutes 'partially unlawful' state aid.

On Wednesday, the Commission said BT's lack of payment into the Pension Protection Fund since 2005 has given the telecoms and services company an unfair advantage over its competitors, which have to pay such levies.

"In the liberalised market of electronic communications, it is important to ensure that BT is subject to the same rules and obligations as its competitors to guarantee a level playing field and fair competition, so that consumers can benefit from high-quality services and competitive prices," EU competition commissioner Neelie Kroes said in a statement on Wednesday.

In 2004, the UK government created the Pension Protection Fund as a safety net for employees of private companies. Businesses are required to pay a levy into the fund, and these monies are used to guarantee the employees' pensions if the company goes bust.

When BT was privatised in 1984, the government granted it a Crown guarantee for pension liabilities, in order to protect the pensions of existing employees.

However, BT has used that exemption ever since for all employees, and the Commission has now decided that the company should have been paying into the Pension Protection Fund since 2005. The decision follows an investigation into the Crown guarantee, which the Commission has been running since November 2007.

According to the Commission's statement, the UK government "must recover the aid by ensuring that a full levy, corresponding to what would have been due since 2005 by BT without a Crown guarantee, is paid to the Pension Protection Fund plus interest".

BT has already put £16.6m — the amount payable for the period between 2005 and 2008 — into a blocked escrow fund. The Commission now wants this money paid into the Pension Protection Fund.

A BT spokesperson told ZDNet UK on Thursday that the company was "disappointed" and would almost certainly appeal the Commission's decision. However, the spokesperson pointed out that BT's pension scheme was worth just over £30bn, and said the £16.6m was therefore "not a hugely material sum".

BT also welcomed the Commission's confirmation that the Crown guarantee itself did not constitute state aid. "We are delighted that the rights of all scheme members who joined before privatisation are fully protected in the unlikely event of BT going into liquidation," the company said in a statement on Wednesday,

The Commission's decision came ahead of BT's financial results for the third quarter of 2008, released on Thursday. The results showed a five percent increase in revenue year-on-year, accompanied by an 81 percent drop in profit. The company attributed this decrease largely to poor performance by BT's Global Services division.

"As previously announced, the group results have been severely impacted by the performance of our Global Services division," BT chief executive Ian Livingston said in a statement. "We need to build a solid base in Global Services from which we can deliver positive cash flows. We have already announced changes in management and are making significant financial and operational changes to the business."