CPI is just real-terms uplift, right?

Grahame Davies

Grahame Davies

25th October 2022

by Pete Farmer

Yes and no; a typical response from a telecommunications regulatory wonk like myself. Unfortunately, that answer, although wishy-washy, is true.

Back when the Bank of England was killing it by hitting their 2% inflation target, the Consumer Price Index was a fair proxy for ascertaining the real terms price of something over a period. Over time, that basket of goods was representative of the total average effect of anything.

Take a large telco; if you were to look at its total input cost difference over a year, a Telecommunications Price Index if you will, you would end up with a figure very close, if not identical to, the Office of National Statistics’ basket of hand gel, smart watches, men’s lounge pants and other mundane stuff. Vendor costs would increase by CPI, staff would get an average CPI increase in their wages, some costs would reduce as products matured or manufacturing became more efficient, some would increase over inflation, maybe because they attracted taxes or duties or whatnot, but on average, we would come back to CPI. 

Fast forward to 2022, when CPI is 13%, does that hold true? Granted energy costs have skyrocketed, and the BTs of this world are very heavy users of energy, and the weakness of the pound means all those dollar denominated agreements with vendors are eye-watering, but the BTs of this world also buy forward and hedge to minimise these market blips. What we do know, based on the Communications Workers’ Union strike action, is that BT staff are not getting a 13% pay rise; in fact nowhere near that. There are 99,000 of them – that is one hell of a big input into a weighted average calculation of their total costs and suggests that a BT Telecommunications Price Index is not 13% at all. It is likely lower, much lower. 

BT (and others) are also committed to increasing their retail costs by 3.9% over inflation. If implemented today, as opposed to April 2023 as planned, that would be a whopping 16.9% on broadband bills at a time of a cost-of-living crisis. The term I am hearing often these days is “greedflation” and BT is seemingly the poster child. 

But residential retail pricing is not something that concerns us directly; as a wholesale provider, our immediate concerns are closer to home. In April, fixed and mobile termination rates are indexed by CPI too, and during the last market review we highlighted that BT is generally a net beneficiary of these matters by way of its history. Expect your geographic and mobile rates to go up by CPI on April 1st and for it not to be an April Fools joke. 

What really gets my goat is that all the time, the British taxpayer (personal or corporate) continue to underwrite BT’s pension scheme by way of a Crown Guarantee, and the industry continues to fund Ronaldo’s salary by the charge control calculation. Oh, and that Crown Guarantee means BT can access funds in the market at a more preferential rate than if there were an exact carbon copy of BT sans said Guarantee. 

Frankly, it’s a metric tonne of bullcrap. John Cleese couldn’t write a comedy as farcical as this if he tried. The British taxpayer is underwriting BT, while BT are preparing to engage in an act of robbery that would make Butch Cassidy blush. Enough is enough, which is why, today, Simwood has written to the relevant DCMS Minister and asked her to consider repealing the Crown Guarantee and using her power to force Ofcom to take account of her concerns in carrying out their duties. 

We will keep you updated! 

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