Alongside full-year earnings which saw the telco’s revenue decline by 1%, BT has announced 13,000 jobs will be heading to the chopping block, while its supply chain has also been lined up for a shake down.
After a torrid 18 months which has seen the business stumble from disaster to scandal and then onto blunder, the team is seeking to save $1.5 billion over the next three years through the changes. Aside from 13,000 job cuts, the majority of which will come from back office and middle-management roles, and restructuring its supply chain, BT has also announced it will be leaving its central London HQ after almost 150 years. All to rectify the horror show which has been BT in recent months.
In terms of the redundancies, BT has stated the objective is to simplify the structure of the organization, creating fewer, but bigger and more accountable leadership roles, while also de-layering its management structures. Automation will also play a role here, with the team looking to streamline operations and simplify business processes. The message seems to be BT is an inefficient beast, and these are the plans to address that.
“We have announced today an update to our strategy to accelerate leadership in converged connectivity and services,” said BT CEO Gavin Patterson. “Our strategy will drive sustainable growth in value by focusing on delivering differentiated customer experiences, investing in integrated network leadership, and transforming our operating model.”
Patterson might be confident on the future of the business, but he has arguably overseen one of the biggest disasters in the telco industry in recent memory. Whether discussing the continued, and questionable, venture into sports content, nefarious accounting, pension scandals or managing a seemingly ineffective relationship with regulators, the BT journey has been almost everything but successful over the last couple of years.
One area which has not bitten BT too hard yet is the acquisition of EE, though it is still early days.
“It’s been a while since BT acquired EE and we’ve yet to see significant benefits from the deal given the ongoing challenges facing the overall group,” said Paolo Pescatore of CCS Insight. “With this in mind it is unsurprising that some of the successful executives at EE have now secured key roles as part of the new entity. Marc Allera being one as well as Gerry McQuaid. EE has been a wonderful asset in its own right and BT needs to do a better job of leveraging this business. It almost feels like a reverse takeover.
“We do not expect major changes overnight. However, changes need to be made across the board with a clear focus on putting the customer at the heart of everything. There is no question that BT has the network assets to play a key role.”
Part of this transformation will be hiring an additional 6,000 employees to support network deployment and customer service, and also addressing an inefficient supply chain. The aim here will be to move from buying to strategic sourcing, consolidating spend from our current 18,000 suppliers. In short, the number of suppliers will be reduced. Part of this initiative will be to standardise the design and sourcing of materials and services for products. It might sound like management talk, but considering the pressure Patterson is under, we would expect some big changes to the supply chain and the way BT interacts with the ecosystem.
On a more positive note, BT will now be able to put (partially at least) the pension scandal in the past. The team has come to an agreement with the Trustee on the pension valuation and recovery plan, which the team has described as ‘affordable’ within the capital allocation framework. The funding deficit has been agreed at £11.3 billion, and will be met over a 13-year period. Payments of £2.1 billion will be made up to 2020, with a further £2 billion contribution, to be funded from the proceeds of the issuance of bonds, due as soon as possible. £950 million payments will be annually between 2020 and 2030. Investment strategies will also be altered to move the focus from growth assets, such as equities and property, to lower-risk investments, such as bonds.
Looking at the performance for the year, revenue was down 1% to £23.723 billion, which includes a £87 million favourable impact from foreign exchange movements and a £157m reduction in transit revenue. ARPU has increased in the consumer business to £41.7. The total number of mobile customers has decreased by 300,000 to 29.6 million over the last twelve months, though the number of broadband customers is up by 300,000 to 20.7 million. Openreach fibre net adds were 555,000, taking the total to 9.8 million, though the troublesome TV business demonstrated another decline.
This has probably been the most bruising mistake for Patterson as the content venture has continued to look like a very expensive mistake. Some might also ask whether such catastrophic redundancies could have been avoided with the error-strewn and wasteful venture into sport. The last quarter saw another net loss of 16,000 subscribers, taking the total down to 1.74 million.
“Worrying times for the consumer unit with another quarter of line and TV losses,” said Pescatore. “Marc Allera has a lot to ponder and faces some tough decisions with the integration of the consumer units. His strive for simplicity and customer friendly approach will put the new entity in good stead. However, he now needs to take a broader role beyond mobile and individual consumers and more about household telecom requirements.”
This is perhaps the harsh lesson Patterson has learnt here. In chasing the content dream, Patterson was after the bells and whistles. Other telcos, the ones which are looking much more primed for the digital economy, invested heavily in readying the network. It might be boring, but the likes of Orange across Europe or T-Mobile in the US have simply focused on making the customer experience better. This is a strategy which is now paying off.
Patterson has seemingly swallowed his pride here, announcing an additional £200 million investment annually, taking the number up to £3.7 billion per year for the next two years. At just over 15% of annual revenues, spent correctly this investment could go some way to future-proofing BT’s broadband and mobile networks. It might be late, but better late than never.
BT has not been an enviable company over the last 18 months, but there is a sense of owning mistakes and taking the mature route forward here. Perhaps the influence of straight-talking, no-nonsense Chairman Jan du Plessis is starting to make waves.