BT to close 90% of UK office locations

BT’s cost-efficiency strategy has managed to avoid the headlines in recent months, but today it has announced it will be shutting down 270 of its 300 office locations around the UK.

Unions have been very vocal opponents of the strategy, suggesting it is the telco’s way of spring cleaning, taking the opportunity to shepherd out old bodies. This announcement might be one of the first steps in the consolidation plan, as new CEO Philip Jansen looks to shore up the spreadsheets and finally realise the potential of the £12.5 billion acquisition of EE.

Snuck in with an announcement about modernising eight offices, BT will close 270 of its 300 office locations around the UK in pursuit of a more attractive profit column. If it is any consolation for the members of staff involved in the re-shuffle, these eight refurbed offices will have 5G connectivity.

Belfast, Birmingham, Bristol, Cardiff, Edinburgh, Ipswich, London and Manchester have been identified as key locations for the business moving forward. In some cases, the same office will be used, though details have not emerged on which staff will be moving into a new space.

“The Better Workplace Programme is about bringing our people together in brilliant spaces, and transforming the way we work,” said Jansen.

“Revealing these eight locations is just the first step; we have dedicated teams working on identifying the best buildings to move into and which ones to redesign for the future. As a result of this programme, BT people will be housed in inspiring offices that are better for our business and better for our customers.”

In all honesty, this is a process which BT has been forced into more than making a choice. The telcos is one of the least profitable in the larger segment, while difficulties in managing the relationship with regulators.

Redundancies and restructuring strategies are never pleasant topics to discuss, however BT does need to ensure it is a business built for the next generation of connectivity. The world has changed dramatically and at an astonishing pace over the last decade, forcing telcos to make some difficult decisions.

13,000 redundancies were announced in May last year, and there have been rumours Jansen might be preparing for another announcement in the future. The last financial results passed without any new cuts, but that is not to say there won’t be more in the future. Most of these cuts will be made in the back-office and middle-management functions, with the UK workforce taking the sharpest part of the blade.

Closing offices and consolidating operations is a sensible business decision, few companies will be blamed for making such financial decisions, though it seems to be more of a material development here. The restructuring strategy of BT is becoming very real.

Telstra confirms 6000 jobs to be cut by the end of this year

Australian telco Telstra has announced steady progress for its T22 restructuring plan, allowing it to retire AUS$500 million of legacy IT equipment and bring forward 6,000 job cuts to 2019.

The restructuring plan, T22, was introduced during June 2018 in an effort to simply the structure of the business and improve profitability. The plan is to remove 8,000 roles in total from the business, through replacing legacy systems, digitising certain processes and simplifying the management structure of the business.

According to Telstra executives, who’s jobs are seemingly secure, the firm had become a burdensome beast and needed streamlining. This plan was set in motion not only to reduce the complexity of the organization, but also deliver AUS$2.5 billion in cost efficiencies by 2022.

In today’s announcement, 6,000 of the planned redundancies have been brought forward from 2020 to 2019, increasing the restructuring costs for this financial year by AUS$200 million and introducing a AUS$500 million write down of the value of its legacy IT assets. Investors might not have expected such a hit in 2019, but the news should not have come as a surprise.

“We understand the significant impact on our people and the uncertainty created by these changes,” said CEO Andrew Penn. “We are doing everything we can to support our people through the change and this includes the up to $50 million we have committed to a Transition program that provides a range of services to help people move into a new role. We expect to have announced or completed approximately 75 percent of our direct workforce role reductions by the end of FY19.”

According to Penn, plans are on track and the majority of the work is behind the team. Employees are yet to discover their fate, however the consultation is expected to finish in mid-June

Headcount FY 2018 total revenue Revenue per employee
Telstra 32,293 $20.05 billion $620,877
BT 94,800 $30.01 billion $316,561
Telefonica 120,138 $54.33 billion $452,229
Verizon 144,000 $130.863 billion $908,770

All figures in US Dollars

While Telstra executives might not like the balance of the spreadsheets as it stands, you can clearly see from the table above it is not in the worst position worldwide. Restructuring plans are certainly having more of an impact at some telcos, take BT for example, though some might be aggrieved when being forced into redundancy.

That said, NPAT (net profit after tax) for 2018 was AUS$1.2 billion, 4.1% of total revenues. When compared to Verizon, where profits represented 8.1% of total revenues, or Telefonica where it was 7.4% for 2018, you can begin to see why the management team is under pressure to find efficiencies across the business.

Redundancies, while never pleasant to talk about, are commonplace in the telco industry and will continue to be so. As businesses evolve, more processes become automated and more technology becomes redundant. This will have an impact on any workforce, but when you consider the complexities of managing a network or securing the digital lives of customers, the demand of digitisation becomes more apparent for the telcos.

Unfortunately for Telstra, it also happens to operate in an environment which makes delivering connectivity incredibly challenging and expensive (i.e. the scale of Australia and the geographical isolation of some communities). Add in the fact it will now longer be able to work with Huawei or ZTE, the vendor pool becomes smaller, adding more financial risk to the procurement channels. All of these factors add up to more financial outlay when it comes to the business of delivering connectivity, and pressure to improve operational efficiencies.

Operators are finally getting the message about 5G monetization

Conversations at Digital Transformation World 2019 indicate operators may finally be getting the memo about monetizing 5G.

The long and short of it is that revenue per bit of data is going down the toilet and we’re rapidly approaching the point when connectivity alone becomes a loss-making exercise. This is obviously a bit of a problem if your main business model depends on making a profit from providing connectivity and brings fresh urgency to the somewhat tired buzzword that is digital transformation.

TM Forum deciding to rebrand its event last year was a reflection of how central to telcos’ considerations this is stuff is. For years is has been repeated to the point of cliché that operators need to adapt the way they do business, become more ‘agile’, fail fast, act more like a Silicon Valley startup, etc. Everyone always agrees, but then we end up having the same chat year after year.

Blame for this can be apportioned to two main issues: technological and cultural. At the event to a company called Apigate, which reckons it’s got a major piece of the technological puzzle nailed. Essentially is offers a platform that cuts out all the middle-men and layers of technology involved in enabling operators to sell digital products and services.

Apigate started life as an in-house project at Malaysian telco group Axiata to resolve its own challenges in this area, but was spun off to become an autonomous commercial operation a year or two ago. IT’s still owned by Axiata but is now seeking additional investment from VC types. Platforms like that, if they deliver as promised, seem to facilitate the process of offering new digital products to operator customers significantly.

Bearingpoint Beyond also offers a digital platform designed to offer a path of least resistance between operators and various other commercial partners, but more from an OSS perspective. Our conversation with them at the show focused as much on the cultural side of things and their impression is that the extent to which operators are acting on all this noble digital transformation sentiment has increased significantly in the past year.

Operators are usually large, listed companies that are used to acting more like utilities than Silicon Valley startups. The strategic emphasis is traditionally more about efficiency and scale than innovation and risk-taking, but the looming ARPU crisis means that’s not sustainable even in the mid-term. Operators all know this but need to find more executive will and nerve than they’re used to showing, to make it happen.

Most of TM Forum’s work is geared towards removing technological hurdles to successful digital transformation, but events like this one are in many ways more about the cultural side. There is definite optimism from them that we’re reaching some kind of cultural inflection point at which operators start taking more risks and vendors get better at helping them do so. The advent of the 5G era, with all the new commercial opportunities it promises, seems to have hastened this process.

For years we’ve been hearing about OTTs making all the money over the top of commoditised connectivity services, so it’s not like this is news. But cultural inertia has meant the eureka moment of fully understanding that connectivity is now just the means of delivering digital products rather than a profitable business by itself. If that arrived then it’s not a moment too soon.

Telecoms vendors need to raise their game – DTW 2019

There was a familiar feel to the latest instalment of TM Forum’s Digital Transformation World event, with operators once more urging vendors to get their act together.

In a keynote session focusing on network transformation for the 5G era Elisabetta Romano, CTIO of TIM, Nikos Katinakis, Head of Networks & IT of Telstra and Luc Noiseux Chief Technology and Strategy Officer at Cogeco talked about how their companies’ own IT systems are adapting to the 5G era.

Romano reiterated a point she had made in an earlier keynote in which she expressed frustration at the speed with which vendors deliver solutions to emerging needs. Having been at Ericsson for years before moving to TIM last year, Romano is in a great position to comment on that dynamic, but doing something about it is another matter.

Her view was echoed by the other speakers and have been a consistent theme of the show for years. As ever the sheer complexity of all the clever stuff that needs to be done to make 5G work is at the root of it, but this is hardly a new thing and, if anything, should present a great opportunity for vendors to increase their value to their operator customers. Opensource was also mentioned as a bottleneck when it comes to the development process.

TM Forum also used the first day of the event to publish some research claiming the telecoms industry costs itself a billion dollars a year by using 30-year-old procurement practices. The research specifically identified the RFP (request for proposal) process as a bit of a liability, with two thirds of CSPs and three quarters of vendors surveyed agreeing that it’s no longer fit for purpose.

“There has always been criticism of the use of the RFP for IT procurement because it glorifies the process rather than the outcome,” said TM Forum’s Chief Analyst, Mark Newman. “But what has now changed is the desire to transition to agile IT development and the need for a more flexible, iterative procurement process.

“This poses real challenges for the procurement function. First, it’s likely to shift the balance between capex and opex budgets. Second, CSPs expect to get more bang for their buck if vendors partner with them on agile development. However, CSPs don’t necessarily know how much a project or solution created with a vendor partner will actually cost in a year’s time.”

TM Forum reckons the agile IT approach could cut the procurement process down from the current average of 12-18 months to just 2-3 months. Just as with the perennial call for vendors to raise their game, however, this would require the kind of cultural shift that is so often the biggest obstacle to successful digital transformation. So we wouldn’t be surprised to see this issue crop up at future events too.

The edge takes centre stage (again)

At Mobile World Congress in Barcelona, the edge was one of the most prominent topics and the same can be said in Denver at Light Reading’s Big 5G Event.

The edge itself is a relatively easy concept to understand, but in reality, the deployment and evolution are much more complicated facets. It is usually the case that the biggest potential or most promising developments are the most difficult to achieve, but it does seem there is resistance continued resistance to change.

“I don’t think we are doing 5G right, we are too obsessed by being faster,” said Telus CTO Ibrahim Gedeon.

This is a message which is becoming increasingly frequent, and while the frequency is encouraging, an some point the walk is going to have to follow the talk. At this event, Telus, Equinix, AT&T, T-Mobile US and Verizon have all preached the benefits of moving beyond a ‘bigger, faster, meaner’ business model which is focused on speeds, but soon enough some might assume these are simply statements to appease the masses.

In terms of the future of the telco world, those telcos who maintain the status quo, focusing on speeds, will march down the path of commoditisation. Those who challenge themselves, taking on the incredibly difficult challenge of evolving the business, will find additional value and redefine themselves as a ‘Digital Service Provider’. And the edge is a very important component of that.

“Does 5G need edge, yes,” said Jim Poole, VP of Ecosystem Business Development at Equinix. “But does edge need 5G, no.”

This is a tricky position and a conundrum often faced in the telco and technology world. For some, the path forward does often look like a solution in search of a problem. It might not sound like the most attractive path, especially when there is the simplistic and more instantly gratifying pursuit of increased speeds.

It all depends on what the telco actually wants. As Mitch Wagner of Light Reading pointed out, there is nothing fundamentally wrong with the utility business model, these are companies which do make money and are often much safer bets, but this is not what the majority of telcos want in the future.

The answer is relatively plain if utilitisation is to be avoided; add more value to the ecosystem. This is where the likes of Google, Amazon and Microsoft have been successful. They have embraced the idea of a solution looking for a problem, demonstrated the value in disrupting the status quo and proved to the world new is better. For the telcos, this means embracing the unknown.

The edge is that unknown for the moment. Yes, the edge exists in the 4G world, but there is much more value in the 5G era. It is a case of putting the cart before the horse, but as it was pointed out today, creating a proposition which is defined by the edge offers a new dynamic, encourages the imaginations of a new type of developer and creates new services. Telcos can be fundamental in delivering the foundations of these new businesses, products and services, but they need to disrupt themselves and create a new organization.

This again is a statement which is not new. This week and countless other conferences have seen executives preach the promise of evolution, but sooner or later the telcos are going to have to replace talking with walking.

The time of rhetoric is coming to an end, we need to see progress in these transformation initiatives.

Telenor makes some IoT predictions

The IoT bit of Norwegian operator group Telenor has had a go at predicting the IoT market, with a bit of help from its friends.

Telenor Connexion partnered with telecoms consultant Northstream (which is quite fond of predictions) to come up with five predictions, which probably means it got Northstream to do 99% of the work and then stuck its name at the end of it. For some reason they decided to conflate IoT with digital transformation – perhaps they could only think of three or four IoT ones. Anyway here they are.

  1. Enterprise data will take the lead in data trading

Enterprises will generate loads of IoT data and they’re not as uptight about things like privacy as consumers so they can flog it to whoever they want.

  1. Digital value will be unlocked faster

The work done by IoT trailblazers has lowered the barriers to entry for newcomers, which in turn will result in greater innovation.

  1. Connectivity will be at the centre of digital product innovation

Right now connectivity is still a bit of an afterthought when developing digital products but increasingly it will be factored in right at the start.

  1. Connectivity will push eCommerce even further

Logistics are improved by better connectivity, which in turn improves the service offered by ecommerce companies.

  1. Managed connectivity will be even more important

As industries become ever more dependent on connectivity, the importance of reliability will increase.

As luck would have it Telenor Connexion can help with all this. “Beyond simply connecting products, Telenor Connexion is dedicated to helping our customers identify the business value in connectivity,” said Mats Lundquist, CEO at Telenor Connexion. “This report is part of that commitment, designed to help enterprises find their way in an evolving business landscape.”

“The business landscape is changing rapidly, which means all types of companies need to consider where they fit in to new digital business processes.” said Bengt Nordström, CEO at Northstream. “With this analysis we also want to highlight the challenge for businesses to face digital transformation on their own – and thus the need to build partnerships with other actors in the ecosystem.”

While it predates 5G, IoT is considered one of the major commercial justifications for moving to the next generation of wireless technology. Not only are the enterprise applications of it easier to monetise, they’re also more likely to be genuinely useful than smart plat pots or whatever. But it’s all about the big data at the end of the day.

Don’t expect upstarts to knock Netflix off its throne – report

A new report from UK analyst firm Re-Think has painted a gloomy picture for those attempting to muscle into Netflix’s dominance in the streaming world.

With the likes of AT&T, Disney and Comcast all attempting to diversify revenues, the riches being raked in by Netflix in the entertainment streaming market must look very tempting, though the rewards will not come easily. This is not to say there is not room for new services, the price point creates an opportunity for multiple service providers in a single household, but Re-Think is predicting Netflix will continue to hoover up profits.

“Despite moves by major studio conglomerates come 2024 Netflix will remain the dominant force in streaming, earning more streaming revenue than the big three put together,” the report states. “Its market share will dilute from 63% last year to 52% by 2024, but our forecasts show that Netflix cannot be shifted from the number one spot.”

Despite going through years of dredge, swallowing the ‘reward’ of being a loss leader in an emerging market, Netflix shareholders are beginning to see the breaking dawn. During the last earnings call, CEO Reed Hastings proudly told shareholders revenues had grown 35% to $16 billion across 2018, with operating profits almost doubling to $1.6 billion. The business finished with 139 million paying memberships, up 29 million across the year.

139 million might sound like an incredible number already, but then you have to consider whether this is just the beginning. International subscriptions, outside of the US market, accounted for approximately 63% of the total offering plenty of headroom for growth. The team is forecasting an additional 9 million additional subscriptions over Q1 alone.

This is the challenge which the upstarts are facing. Not only is this a company which is sitting very comfortably in the number one spot, but it has momentum which it is doubling down on. At IBC last year, Maria Ferreras, VP of EMEA Business Development at Netflix pointed towards partnerships with telcos (carrier billing), more original and local content, as well as launching in new markets to continue the growth.

During the results call, Hastings confirmed these plans were scaling up. The relationships with local partners were working well, and the team were searching for more, while more investment was being directed towards content. Investments over the last twelve months totalled $7.5 billion, and this number will only grow. It probably won’t be on the same trajectory as previous years, but the number of big-budget titles are visibly increasing on the platform.

“The extraordinary success of Netflix has got it lined up in the sights of the big studios and content houses and the big question now is how well it will stand up to that assault on multiple fronts,” the report states.

Hulu is an established platform, as is Amazon Prime, but with Disney entering the market with an impressive portfolio, while Comcast is pushing forward, and AT&T will soon start making waves with its $85 billion acquisition of Time Warner. There is a lot of competition emerging on the horizon, but these the upstarts have a lot of distractions.

Over the next couple of months, we see two developments which will worth keeping an eye on in this space. Firstly, the protection of traditional TV services and also the consumer appetite for AVoD services, streaming with advertising.

Advertising is clearly big business. In the UK, you only have to look at the success of Sky as the leader in the premium content space as an example. Like the social media giants, Sky has created a sophisticated advertising platform, AdSmart, allowing advertisers to drive engagement through hyper-targeted campaigns. This model continues to work with Sky, but perhaps it is living on borrowed time.

The Netflix model is the opposite. An upfront payment and the promise of no advertising to break-up shows or movies on the platform. The more people who subscribe to Netflix, or similar platforms, the lower the tolerance for adverts will become. Netflix might be missing a cash generation opportunity, but it also might be irrevocably changing the industry. This will not happen overnight, but it might be the light at the end of the tunnel.

The second point, protecting legacy services, is going to be a tricky one. The likes of Comcast and AT&T will have cash revenues to worry about as they effectively cannibalise themselves in search of the OTT dream. Looking at the revenues on the traditional TV services, Re-Think is forecasting AT&T will decline from $64.7 billion in 2018 to $47.7 billion in 2024, Comcast from $25.8 billion to $20 billion and Disney from $11.5 billion to $9 billion.

Should these companies encourage users to migrate to their streaming alternatives, the decline could be even steeper. This might give the streaming service more opportunity to succeed in an increasingly fragmented market, but investors might get spooked. It’s a catch-22 situation, with one option killing revenues but the other holding back a more future-proofed concept.

The challenges for those trying to break Netflix dominance is not only dealing with the beast’s popularity, but also handling the internal politics of change. This might be much more of a challenge, especially when you consider the traditional culture of the challengers.

Ultimately the feedback here is relatively simple; Netflix is king and don’t expect the usurpers to wobble the throne too much.