Sir Bryan Carsberg, director general of telecommunications at the Office of Telecommunications watchdog has been rapping British Telecommunications Plc’s knuckles again. This time it’s because of the telephone operator’s loss-making apparatus supply business which, the industry regulator has decided, is being unfairly subsidised by the rest of BT’s income. A formal direction from Sir Bryan requires BT to show him detailed budgets, demonstrating how the business is to be put back on a profitable basis over time. Should the effort fail, Oftel will review the situation, it said rather ominously. The problems first came to light in 1986 when Oftel examined the accounts of the UKP1,350m-a-year business and made the tentative determination that there was unfair cross-subsidy afoot. Oftel tackled BT, but was assured that the company was buckling down and that the apparatus supply business would be put on a fully-allocated cost basis by 1990. Indeed, initially the plan seemed to work and Sir Bryan notes in his statement that the full year audited results for 1987-88 showed considerable improvement – a bright note that is then immediately tempered by the addition that since 1987-88, however the profitability of the Apparatus Supply Business has steadily deteriorated. In its defence, BT points both to the recession and what it says is the orthodox view that if a business covers its incremental costs it is not cross-subsidised. The Oftel view appears to be reliant on the full costs allocation methods, it says. Sir Bryan is not convinced; nor is he satisfied by the way in which BT has omitted to allocate any corporate overheads to the Apparatus Business in recent years on the grounds, he says, that the business could function adequately without support from a headquarters organisation. BT’s response to his statement came from the press office based – yes, you guessed it – at the firm’s headquarters.
