BT increases profit on declining revenues by getting rid of 2,000 people

Operator group BT saw its revenues decline in the six months to the end of September but still managed a 30% increase in net profit.

Profit is revenue minus overheads and reducing the latter is a time-honoured way for companies to keep themselves in the black. Among BT’s five strategic highlights for the fiscal half-year, which included finding a new CEO and demonstrating its 5G capability, was the ‘removal’ of around 2,000 roles over that time. The other two were a small NPS gain and some vague Openreach achievement.

“We continued to generate positive momentum in the second quarter resulting in encouraging results for the half year,” said Chief Exec Gaving Patterson, possibly for the last time. “We are successfully delivering against the core pillars of our strategy with improved customer experience metrics, accelerating ultrafast deployment and positive progress towards transforming our operating model.

“In consumer, we continue to see strong sales of our converged product, BT Plus, and have seen good mobile sales following new handset launches. Last month EE demonstrated 5G capability from a live site in Canary Wharf. We have maintained momentum in our enterprise businesses despite legacy product declines.”

BT had some fun with its slide deck this quarter, a highlight being the below attempt to illustrate its group strategy via the kind of rectangle-stacking larks usually associated with software architecture diagrams. It presumably took a while to do but apart from being an efficient way to display a number of generic corporate aspirations it’s not obvious what BT is trying to say.

BT Q3 2018 slide 1

There were also distinct slides summarising the performance of each business group. As you can see below revenue growth was hard to find, and it’s interesting to note which other metrics were cherry-picked to show the division in the best light. In terms of revenue BT remains very much a work in progress but making a decent profit is certainly a step in the right direction. You can read further analysis on this here.

BT Q3 2018 slide 2

BT Q3 2018 slide 3

BT Q3 2018 slide 4

BT Q3 2018 slide 5

BT Q3 2018 slide 6

 

Ofcom officially releases BT from its Openreach undertakings

Measures BT undertook in 2005 to placate Ofcom over its wholesale operations are officially no longer relevant, so it doesn’t need to bother.

This seems to be a bit of a formality, since the legal separation of Openreach from BT is supposed to mean BT has no direct influence over the fixed line wholesaler. But at the very least it marks a milestone in BT’s relationship with Ofcom and gives Philip Jansen one less thing to worry about when he takes over next year.

The previous milestone was the official transfer of 31,000 staff from BT Group to Openreach at the start of this month. “This is an important day for Openreach as we’re fulfilling the commitments to Ofcom under the Digital Communications Review,” said Openreach Chairman Mike McTighe at the time. “Openreach now has its own Board, greater strategic and operational independence, a separate brand and an independent workforce – and we’re ambitious for the future.”

The long and short of it seems to be that Openreach now has a separate and distinct relationship with Ofcom and will be assessed solely on its own merits, with no BT baggage. This is probably good news for everyone and is ultimately what all this ‘legal separation’ business is supposed to be about. It should also protect Openreach from accusations of favouring BT. You can read the full statement here.

A possible manifestation of this new, unfettered Openreach may have been the announcement last week that it is dropping the price of full fibre broadband infrastructure to new homes by 75%. Openreach got a nice lot of kudos from public figures for doing its bit to improve fibre coverage, so job done there.

AI plays critical role in network security, according to BT boffin

Artificial intelligence (AI) is going to play a critical role in network security in the coming years and is already helping BT defend its infrastructure.

Ben Azvine, the Global Head of Security Research & Innovation at BT, has been at the heart of cutting-edge network security developments at BT for several years and has helped develop a cybersecurity strategy that combines AI-enabled visualization of cybersecurity threats with highly-trained network security personnel. He shared some of his thoughts on the matter with attendees at this week’s Broadband World Forum event.

“We are taking AI and making it help humans to be better… We are more about the Iron Man version of AI than the Terminator version,” he said, sparking ludicrous cinematic pitch ideas in the minds of some of his audience (I mean, Alien vs Predator sort of worked, right?).

Azvine pointed out that with the number of connected devices growing rapidly, old ways of securing assets were no longer relevant: Now, companies (including network operators) need to think about having a cybersecurity strategy comprising three steps – prevention, detection/prediction and response. The response needs to be much quicker than in the past (hours, not days) while the detection/prediction is tough to do without sophisticated analytics and AI algorithms.

What BT is doing is a great example of analytics and AI in action in the communications networking sector, rather than AI as a marketing hype machine — see ‘Why BT’s Security Chief Is Attacking His Own Network’ for more details.

But security is just one of seven key telecom AI use cases, as identified in a recent report, Artificial Intelligence for Telecommunications Applications, from research house Tractica (a sister company to Telecoms.com).

That report identified the seven main use cases as:

1) Network operations monitoring and management

2) Predictive maintenance

3) Fraud mitigation

4) Cybersecurity

5) Customer service and marketing virtual digital assistants (or ‘bots’)

6) Intelligent CRM systems

7) Customer Experience Management.

“The low hanging fruit seems to be chat bots to augment call center workers,” said Heavy Reading Senior Analyst James Crawshaw, who will be one of the expert moderators digging deeper into the use of AI tools by telcos during Light Reading’s upcoming ‘Software-Defined Operations & the Autonomous Network’ event.

“The more challenging stuff is making use of machine learning in network management. That’s still a science project for most operators — Verizon’s Matt Tegerdine was pretty frank about that in his recent interview with Light Reading. (See Verizon: Vendor AI Not Ready for Prime Time).

That analysis from the Verizon executive shows it’s still early days for the application of machine learning in production communications networks. And, as Crawshaw noted, AI is not a magic wand and can’t be applied to anything and everything. “It can be applied to the same things you would apply other branches of mathematics to, such as statistics. But it’s only worth using if it brings some advantage over simpler techniques. You need to have clean data and a clear question you are seeking to answer — you can’t just invoke machine learning to magically making everything good,” adds the analyst, bringing a Harry Potter element to the proceedings.

So what should network operators be ding to take advantage of AI capabilities? BT appears to have set a good example by hiring experts, investing in R&D, applying AI tools in a very focused way (on its cybersecurity processes) and combining the resulting processes with human intelligence and know-how.   “You don’t need to recruit an army of data scientists to take advantage of machine learning,” said Crawshaw. “Nor should you remain totally reliant on third parties. Develop a core team of experts and then get business analysts to leverage their expertise into the wider organisation.”

The rumours were true – Philip Jansen will be the next BT boss

A week after the news was widely leaked, BT has confirmed that its next Chief Exec will be current Worldpay boss Philip Jansen.

Various factors made the move seem plausible, including the fact that Jansen had already resigned from Worldpay and the conspicuous lack of any other viable candidates revealing themselves in the months since the search to replace Gavin Patterson commenced.

Jansen has plenty of top-table pedigree, having been the main man at Worldpay for five years, during which he took the company public and then oversaw its merger with Vantiv at the start of this year. Both moves presumably didn’t do his bank balance any harm, which does call into question his motivation for taking on such a tricky job, but these CEO types just can’t help themselves, can they?

“I’m honoured to be appointed as the next Chief Executive of BT Group,” said Jansen. “BT is a special company with a wonderful history and a very exciting future. It has built a leading position across fixed and mobile networks, creating an opportunity to deliver increasing benefits for our customers, the UK economy and our shareholders.

“In a competitive market we will need to be absolutely focused on our customers’ needs and pursue the right technology investments to help grow the business. I’m excited to get to know all the people at BT and work together to take the business forward.”

“The Board is delighted to have appointed Philip as our new Chief Executive,” said BT Chairman Jan du Plessis. “He is a proven leader with outstanding experience in managing large complex businesses. Philip’s strong leadership has inspired his teams, successfully transformed businesses across multiple industries and created significant value for shareholders. His most recent success at Worldpay, a technology-led business, means he is well suited to build on the solid foundations that are in place at BT. I look forward to working with him to position BT at the heart of the UK’s digital economy.”

Jansen will join BT at the start of next year and will spend a month shadowing Patterson to make sure he knows the ropes before the latter retreats to the life of leisure it’s tempting to assume he’s already made a head-start on. The starting salary for BT CEO is £1.1 million plus a portfolio of benefits breathtaking in its opulence, including nearly $1 million in BT shares to compensate him for whatever Worldpay options he’s no longer able to cash in.

Worldpay is an electronic payments company so Jansen will have some adjusting to do at BT, but he was MD of Telewest a while back so all the telecomsy stuff will presumably come flooding back before long. Just bang on about 5G and fibre mate – it’s easy. The Openreach problem seems to be largely resolved but there will still be plenty of Ofcom fun to be had and it will be interesting to see how his style contrasts with Patterson’s.

BBWF 2018: Consumers don’t care about tech, just connectivity – BT

Today’s consumer is demanding but disinterested. They don’t care about mobile or broadband or wifi, just top-line connectivity. To meet these demands, BT has pointed to network convergence.

Speaking at Broadband World Forum, Howard Watson, BT’s CTIO, outlined the bigger picture. It’s all about convergence where the dividing lines between wireless and fixed or hardware and software are blurred, with connectivity is viewed as a single concept, bringing together network design, technology convergence and customer insight to create a single software-orientated network for device neutral connectivity.

“For the consumer, it’s not about their wifi, or their mobile connection, or their fixed broadband, or even their landline,” said Watson. “It’s about connectivity as a whole. And I’m pleased to say we’re already making strong progress here.”

Of course, it wouldn’t be a telco conference without mentioning 5G, and this is a critical component of the BT story. Trials have already begun in East London, though over the next couple of days 10 additional nodes will be added to expand the test. Plans are already underway to launch a converged hardware portfolio, introduce IP voice for customers and create a seamless wifi experience. All of this will be built on a single core network.

But what does this mean for the consumer? Simplicity in the simplest of terms.

The overall objective is to create a seamless connectivity experience which underpins the consumer disinterest in anything but being connected. Soon enough, devices will be able to automatically detect and select the best connectivity option, whether it is wifi or cellular for example, essentially meaning consumers will not have to check anything on their devices. Gone will be the days where you have to worry about your device clinging onto weak wifi signal or being disrupted by a network reaching out to your device, according to Watson. Signing in will become a distant memory as the consumer seamlessly shift from wifi to mobile.

This is of course a grand idea, and there is still a considerable amount of work to be done. Public wifi is pretty woeful as a general rule, and mobile connectivity is patchy in some of the busiest and remotest regions in the UK, but in fairness to BT, it does look like a sensible and well thought out plan.

With telcos becoming increasingly utilitised, these organizations need to start adding value to the lives of the consumer. Connectivity is not enough anymore, as it has become a basic expectation not a luxury in today’s digitally-defined society; providing the seamless experience might just be one way BT can prove its value. Fortunately, with its broadband footprint, EE’s mobile network and 5000 public wifi spots throughout the UK, BT is in a strong position to make the converged network dream a reality.

BBWF 2018: Chorus sings the praises of centralised infrastructure model

Yesteryears rumbling story was the enforced separation of BT and Openreach, and while this might have been nothing more than a thinly veiled show, Ofcom might look at the success of Chorus for future inspiration.

Down in New Zealand, Chorus is an example of what can be achieved through structural separation and effective centralised investment in broadband infrastructure. The business is rolling out fibre faster than many in the world, giving rise to a landscape which benefits the consumer and is remaining profitable in the meantime. Speaking at Broadband World Forum in Berlin, Kate McKenzie, CEO of Chorus, demonstrated just what is actually possible.

Back in 2011, Telecom New Zealand was completely separated into two legal entities; Spark for mobile and Chorus for broadband. Unlike the Openreach and BT separation, these are two entirely separate (and listed) businesses, both of which are proving to be a success.

Fibre broadband penetration is at roughly 70%, with the team targeting 87%. Ubiquitous penetration would be perfect, but due to the at times harsh environment in New Zealand, it is just commercially impossible with today’s economics. New Zealand might be a small country, but the environment is incredibly varied and population density can be a nightmare. Technology is now the third largest contributor to the economy, accounting for 8% of GDP, and is steadily growing. The country now even has its own space programme, and fibre penetration has been heralded as part of this success.

“Coming up with a plan and sticking to it is key to success,” said McKenzie. Sensible regulations, consistent government policy, an understanding of consumer demand, as well as a vigilant board to keep a close eye on costs and returns, are needed to create a successful centralised infrastructure model.

The only suspect outcome is the 90+ service providers in the market. This might be great for the consumer, but it is not sustainable. Barriers are entry are almost none existent allowing anyone to get involved, but numerous of these businesses will fail due to the cut throat nature of competition. However, there certainly are some interesting models. One example is energy companies bundling energy and broadband services together.

Of course, there are dangers of centralising so much spending. Without a resilient and robust regulatory framework, the monopoly could be abused. Australian broadband providers are supposedly feeling the sting of NBN’s dominance with Telstra complaining wholesale rates are double what they should be. The political agenda also needs to be quite stable, as too much interference or changes from different government administrations could cause disaster.

Despite the negatives, New Zealand seems to have struck the right balance. Perhaps this is a country Ofcom should have a close look at. BT might have resisted (and will obviously continue to do so) pressure to remove Openreach from its business, but under the right conditions, New Zealand has shown the great benefits which can be realised for the economy and the consumer.

BT rumoured to offer top job to Worldpay CEO

Following the exit of Baywatch lookalike Gavin Patterson, everyone has had a go at guessing who will be the next BT CEO. The wait may well be over with BT reportedly offering the job to Philip Jansen.

According to Bloomberg, BT have been in private discussions with Jansen for some time now, with the rumours of his ascension emerging in September. People familiar with the matter suggest an offer has been made, with BT potentially making the official announcement on November 1, alongside its financial results for Q3.

Irrelevant as to whether the rumours prove true, the new boss will have a tough job turning around a business which has faced several scandals over the last 12 months, profit warnings and a turbulent relationship with UK telco watchdog Ofcom. The team also need to fix a heavy pension deficit, while also finding additional funds to ensure both its broadband and mobile networks remain competitive. Over the last three years, share price has dropped roughly 59%, with it currently being the lowest for six years. Jansen might be heading into one of the toughest jobs in telco.

Adding to the rumours of the Jansen discussions is his resignation from Worldpay which was announced last month. Jansen will remain in the role until the end of the year, though the stars do seem to align.

While there have been several names thrown around, Jansen does make a compelling case. During his tenure, Jansen oversaw the $10.4 billion acquisition and merger of Worldpay rival Vantiv, adding a few interesting bullet points to his CV. With the EE purchase still to pay dividends, perhaps a fresh set of eyes, with experience in significant M&A is an attractive idea.

EE breaks out the tractor for 2019 5G launch

EE has confirmed it will re-farm 3G mobile services in 2100 MHz spectrum band to boost 4G experience and lay the foundations to hit the 5G on-switch next year.

While it has generally been accepted the European telcos are lagging behind North America and Asia in the 5G race, EE is attempting to show you cannot bundle the entire block under the banner of boresome. In targeting 2019, EE joins the likes of Telia leaving the vast majority of European competitors in the trailing peloton.

“Our customers want a fast and reliable 4G connection, and that’s what we’re working to give them,” said Marc Allera, CEO of BT’s Consumer business.

“We are using the investment we made in 3G spectrum nearly 15 years ago to give customers today a great experience with the latest smartphones on 4G, and build our foundation for 5G in 2019. We’re constantly evolving, and the customer experience of 5G will be dictated by the quality of the 4G network underneath.”

Looking at the 4G side of things first, over the next six months 500 towers will be switched over from 3G to 4G. The announcement keeps the telco on track to power down 3G by 2022, an objective which was seemingly accidentally announced during 5G world at the Excel this June by CTIO Howard Watson. The sites which are being converted have been identified as the ‘hotspots’ across the UK, those areas where there is the greatest demand for mobile connectivity.

Some of EE’s more advanced sites already support carrier aggregation technology, allowing EE to combine spectrum from multiple spectrum bands to improve customer experience, though the re-farmed 3G spectrum to support five carrier aggregation (5CA). Only newer smartphones will be able to experience this 5CA bonanza, but it will certainly continue to improve the 4G experience.

Moving onto the 5G side of things, the commitment is quite vague in that it is nothing more than 2019, though EE is certainly one of the exceptions to the European sluggish 5G trend. Finnish telco Telia is another which announced last week it would launch commercial 5G services at the beginning of 2019, though considering the technology expertise Finland has in Nokia, this announcement is perhaps less surprising.

For EE, the plan is to make use of the upgraded sites with the maximum amount of 4G spectrum, with 5G sitting on top. Considering 5G is a technology which will aid the telcos in dealing with the extraordinary demand which is developing in some city centres, this makes sense.

What is worth noting is these are only pockets of the country; the 5G dream will not be experienced by the majority, though it is another tool for the marketing department to preach about. Three has been connecting more of its network to BT exchanges ahead of 5G, though this is ahead of a 2020 launch. Vodafone won plenty of spectrum at the latest auction, though it is also targeting 2020. O2 has questioned whether any launches before 3GPP’s Release 16, due in December 2019 and would set the scene for standalone architecture, is actually 5G in any case.

Getting the opportunity to boast about 5G services, despite them being incredibly limited, 12 months before its three competitors is a significant boost for EE. We expect it will dominate advertising campaigns, conference speeches and PR stunts for the next couple of years. It’s a message the marketing team will not get bored of until another telco can say the same.

A final question worth asking is whether this is enough to recapture its position at the top of the market share rankings, a spot which has been held by O2 for the last couple of quarters. All will depend on how much of a premium EE decides to charge customers for 5G, and we suspect it will take advantage of the situation. With a monopoly on 5G and lost fortunes to recover, we suspect EE will put the really pointy shoe on.

Ronan Dunne said to be in the running for the BT CEO gig

Current Verizon exec and former O2 UK boss Ronan Dunne is reported to be one of the people BT is considering to replace Gavin Patterson.

The rumour comes courtesy of the Telegraph, which has sources that claim Dunne was recently over here to speak to BT about the opportunity. That’s about it as far as the Telegraph story goes – no comment from either Dunne or BT and it could just be blind speculation. But it is also plausible as Dunne has a lot of relevant experience and could be keen on the opportunity having missed out on the top job at Verizon and an apparent sense of unfinished business in the UK.

Current BT CEO Gavin Patterson decided to throw in the towel earlier this year following a bunch of negative events afflicting BT under his tenure. It looks like a pretty exasperating gig, not least due to the tightrope the former state monopoly has to walk with regulators. Dunne’s move to Verizon seemed to be prompted by his own negative regulatory experiences following the blocking of O2’s merger with Three UK, but maybe a couple of years away has renewed his appetite for the fight.

Among the other frontrunners for the top job at BT are current consumer boss Marc Allera and various other BT senior execs as well as anyone else a headhunter might find when the Goole ‘UK telecoms CEO’. Informa’s Stephen Carter has apparently distanced himself from the position without entirely ruling it out and they could just stick the head of another utility in if they wanted to play safe.