Regulatory resentment, massive job cuts, marginalising customers - the reality behind BT's latest 'new' strategy

Jan du Plessis, brought in as Chairman of BT last November, says that knows where his company’s duty lies:

We'll ensure that we play our part in keeping the UK a leading digital economy.

But at the same time, 13,000 jobs are to go at BT as the UK’s biggest telco tries to stop long term rot. Coming on top of 4000 job losses last year, this latest throw of the dice will focus on middle management and back-office roles, although 6000 front line engineers, customer service and cyber-security staff are also for the chop.

And with a kind of horrible symbolism, the firm that claims to be powering the UK digital economy is also abandoning its flashy headquarters in the nation’s capital in a bid to save some cash.

It’s a litany of horrors from a one-time state monopoly that was essentially turned into a privatised monopoly and allowed to do its own thing for far too long. The biggest problem for the UK as a nation is how closely the state of the country’s digital economy is aligned to the fate of BT.

BT senior management makes no bones about focusing on making shareholders happier and bemoans “regulatory headwinds”, rules and regs that should have been put in place years ago had Ofcom or the Department of Digital, Culture, Media and Sport managed to summon up the courage to take on a behemoth that’s been allowed to grow untamed.

Certainly CEO Gavin Patterson remains defiant despite the catalog of failures that has stacked up on his watch., declaring himself to be “excited about the future of BT” in the hours after 13,000 employees were waiting for their pink slips. Talking with analysts, Patterson spouts fluent managerial platitudes:

BT is really well positioned in its markets.

After a challenging prior year, our focus was on disciplined delivery and risk reduction.

We have evolved our strategy around leadership and converged connectivity and services.

We will put our customers at the centre of everything we do and emphasise value over volume.

We’ve created a platform to deliver the next stage of our transformation.

We will deliver differentiated customer experiences across all our brands, across consumer and our enterprise businesses and Openreach, and put the customer at the centre of everything we do.

We're going to drive deeper penetration of digitalization to improve customer experience and cost to serve.

This is a major change agenda to ensure that BT can thrive in a competitive market

I'm really excited to be delivering the next stage of BT's evolution.

Well, someone has to be, I suppose.

There were a few stabs at some specific action points:

In B2C:

We will also make better use of customer data and better use of digital channels for more targeted and personalized marketing, complemented by our nationwide retail footprint allowing for a local and personal service.

In enterprise:

We will improve customer experience while automating and standardising processes to reduce cost to sell and serve along key customer journeys.

In Global Services:

We will leverage our security offering as we will in our enterprise business and we'll continue to introduce new software-defined dynamic hybrid networks and cloud services to the market and leverage our scale with major global partners such as Cisco, Amazon Web Services, IBM and Microsoft to deliver the best solutions for our customers.

Regulatory resentment

On the subject of regulation, there’s still an undertone of resentment that seeps through.

Patterson has made his displeasure known about the moves by both government and regulators to address the toxic cartel that was BT and its ownership of Openreach, which runs the UK network BT inherited from the taxpayer. At one point, he even told the UK government that it couldn’t legally break up the two so long as Britain was still part of the European Union! 

The regulatory moans continued this week, as the BT CEO complained:

The impact of regulation is a continued headwind for our business. To put this in context, over the last three years, and just looking at the direct impact on prices, regulation has impacted BT by over £500 million. The expected cumulative impact over the next three years could be more than £1 billion if we include the potential indirect impacts as well.

There was an attempt to play nicer, albeit none-too-convincing:

I do think we are increasingly getting the right sort of conversation with government and with Ofcom…What I will say is, as we have got involved in the DCMS infrastructure review, as we've talked more to Ofcom, I am increasingly confident that there is a better understanding that these investments [in full fibre broadband] are not without risk, and they are long-term investments with challenging economics, and I'm getting a sense that that is better understood now.

There's also some sulking over BT’s 2017 offer to voluntarily provide a Universal Service Obligation (USO) of 10Mbps. This was seen by many as a move to avoid Ofcom or the government imposing higher requirements and was indeed rejected by DCMS in December last year. Patterson clearly wasn’t happy at this snub:

We were disappointed that the government decided not to take up our offer on USO. It was, I think, a very good proposal, a fair proposal. It would have allowed the last 5% of the UK to have a broadband product of at least, and I mean at least 10 megabits per second by 2020 and do so in a way that allowed us to make a fair, not an excessive return, and it would it would be collected through charge control. So, we made, I think, a very good offer. They decided not to take it. And as such, we've refocused elsewhere.

And that’s bad news if you’re stuck on a shoddy broadband service from BT. Patterson said:

Our focus is increasingly around value versus volume in terms of customers. We're looking to focus on the higher-margin, higher-priced products such as fibre...we're not going to chase marginal customers and unprofitable customers simply to hit a volume market share within the quarter.

And there’s an entirely predictable scaling back on the idea of getting 10 million UK households and businesses onto full fibre by 2020. Turns out, that’s now just a sort of ambition thing:

What I've talked about today is a reiteration of the 10 million ambition for the mid-2020s. Not everything is in place to deliver that today, but we're confident that we can deliver 3 million by the end of 2020. So, if there's a change of emphasis today, it is not about the 3 million versus the 10 million per se. We continue to be focused on getting to 10 million. We're sure about the 3 million.

The antagonism between BT and regulators/government is hugely damaging to the UK digital economy and it’s something that Chairman du Plessis does at least appear to recognise:

When I joined the board or when I sort of was approaching to join the board about a year ago, the fact is relationships were a bit strained at times. There were some bruised egos around. I think at that point in time, it was obvious to me that we really, really needed as a company to reach out to Ofcom and to government to rebuild relationships which had become a bit strained. I say that deliberately because it's true and I think we might as well acknowledge that.

I think we've come a long way. I think the work we've done in relation to the separation of Openreach and the governance regimes around that to convince government we're really serious about delivering on our commitment. And in numerous ways, we have all, including myself, signalled to Ofcom and to members of government, important members of government, that we want to rebuild relationships and we want to get away from this sort of having our disagreements in public, which I think doesn't help anybody.

Good. But at the end of the day, BT has other priorities that are imposed upon it as a private company with fiduciary responsibilities as du Plessis admits

I want to emphasise that ultimately, I am ultimately here to serve shareholders, but we can only do that if we also serve the needs of the stakeholders and the country of which we're such a critical part.

And that’s the trick that there’s no sign of BT pulling off.

My take

To my mind, there’s one job that should be going in the latest round of cuts and that belongs to Gavin Patterson. But there’s no chance of that happening…or not just yet, at any rate.

I finally lost what little patience I had with BT this week when I heard his comments about not wanting to deal with “marginal customers and unprofitable customers”.

I’m one of those. Living in the centre of a large city in the South East of England, not some rural exile, BT cannot - or rather, will not - provide a broadband speed that ever tops 4Mbps and frequently drops below 1.5Mbps at busy times.

It’s clear from Patterson’s comments that nothing’s going to change. So I cancelled and am moving over to Sky. Of course, after years of utter indifference and totally appalling customer service from so-called BTCare, I’m now getting texts and letters and calls asking what they’ve done wrong and why am I leaving them, boo hoo hoo?

But away from my personal complaints, the wider concern is the damage that this most bloated and unchanging of companies does to the wider prospects of the UK digital economy as Brexit looms. The regulator Ofcom has shown some twitches of growing a spine which is good, but more is needed. DCMS meanwhile continues to display all the signs of governmental ‘Stockholm Syndrome’, with the occasional ‘getting tough’ outburst that then doesn’t get followed up with action, but more consultation that will take us well-beyond Brexit day.