'Ifs, buts and maybes' from troubled BT won't help a post-Brexit digital economy

Profile picture for user slauchlan By Stuart Lauchlan November 2, 2017
A post-Brexit Britain needs a robust digital economy. Unfortunately the nation is overly-reliant on BT upping its game to help empower that.

Leaving aside the lamentable progress made on high-speed broadband and the ongoing dragging-of-feet over separation from Openreach, BT’s got big problems with its Global Services business as well.

Underlying revenue for Global Services was down 11% year-on-year in the most recent quarter, leaving BT CEO Gavin Patterson to describe the past few months as “tough”. He said:

In addition to challenging market conditions, the decline is also explained by our decision to deemphasize the margin business such as IP exchange and equipment sales. Most of our contract win rates has remained broadly stable. The prior year included a number of large contract renewals and we are seeing a reduction in the size of contracts along with more competitive bidding. Consequently, our total order intake for the quarter was down 38% and down 25% on a rolling 12 month basis.

The public sector business opportunities haven’t helped. Graham Sutherland, CEO of BT Business and Public Sector, insisted that the underlying foundation of the business is sound, adding:

We've been clear and transparent that we take two years for the public sector contracts that we lost in 2014, 2015 and 2016 to wash their business. You can see the improving trend on our major and public sector division in terms of revenue. During that period, we've also been working very hard on our sales capability distribution to strengthen the organization working very hard in customer experience in line with the lot of the comments you've heard to drive down our cost base.

Where we are in terms of the contracts that we've lost, we're 18 months into that two year period now…Our expectation is that we will retain half of what still remains on those contracts and probably around the end of the fiscal year, we will be in what I would say a steady state contract position in relation to that.

Back to broadband

As for rolling out super fast broadband, the usual ifs, buts and maybes remain in evidence with BT making a show of co-operation while pushing responsibility back onto the government. Patterson said:

We're playing our part to ensure that 95% of UK homes and businesses will have access to superfast broadband by this December. The government is considering an offer to deliver a minimum of 10 megabits universal broadband commitment to the whole of the UK and Ofcom is now consulting on this proposal by the wholesale local access market review and we look forward to a positive outcome.

Of course that offer is a transparent way to avoid having minimum standards imposed by regulator Ofcom, while the support for government targets comes with a need to dip into the public purse. Patterson said:

We're making significant investments in the UK infrastructure and we are ready to go further with fiber to the premise and our universal broadband commitment, subjective to support from government and the regulator.

With an eye to the regulator, Patterson pitched that the plans to detach Openreach, which even Digital Minister - and BT cheerleader-in-chief - Matt Hancock reckons is going too slowly, are proceeding well:

It's important to note we are constructively engaged with Ofcom and moving forward in our discussions. We're getting on with delivering the digital communications review as agreed with upcoming March. We've refreshed the Openreach brand and this progress on implementing the Openreach governance framework.

The other big government ambition is to get fibre rolled out to replace copper infrastructure as soon as possible. Again it’s the usual ‘ifs, buts and maybes’ on show as Patterson said:

There's a belief that across the industry that we need to do this at some point and…there will need to be tradeoffs and sacrifices made by everybody. But once we've been through this transition, we will have the best network, one of the best networks across the world. They recognize it's going to take a long time, they recognize they're going to have to do switchover, they recognize that prices will have to go up to pay for it. We can't ultimately keep doing this in an environment where the price of broadband comes down. It’s just doesn't make sense.

Patterson makes much of efforts to cut costs and turnaround the services business:

We are shifting our focus away from single country customers and favorite global customers where we are truly differentiated… we are pressing ahead with restructuring global services to make ourselves a more efficient competitor particularly in Europe by streamlining and simplifying the business and operating model.

He added:

It isn't an overnight change, we've got to migrate transform the business over two to three years.

But there are still some hugely questionable decisions being made at the top of the company. In March it signed a deal to pay £1.2 billion to retain Champions League soccer rights from 2018-2021, while its current three-year Premier League deal costs £960 million pounds. But net new subscibers for BT’s TV offering scraped in at a mere 7000, compared to 63,000 last year.

Money well spent there, you might think, but expect more such spend to come as Patterson confirmed:

The strategy on BT Sport has always been to look at the impact as of course the business as a whole. When we launched, initially it was free and that was key to drive scale and get critical mess. But over time, we've moved it to a paid-for proposition which is why the direct revenues have increased a lot more.

My take

As the UK heads into Brexit, empowering and enabling a robust digital economy will be essential. Patterson himself alluded to this yesterday. How depressing then that he presides over a company whose stranglehold on the national network infrastructure has left so many parts of the country in the digital slow lane, whatever the political blandishments that come out of the Department of DIgital,Culture, Media and Sports. (DCMS).

There’s a need for radical change. I’m tired of saying it, but Ofcom needs to match its mildly-threatening statements and wave a ruddy big stick in the direction of the BT Tower, while DCMS ministers should stop re-tweeting cheer-leading press releases from BT and start acting like genuine digital leaders and reformers. I’m holding my breath on neither of those prospects however.