May 14, 2018 / 5:09 PM / 6 months ago

Under-fire BT boss pins hopes on EE reboot to buy time

LONDON (Reuters) - Under-fire BT CEO Gavin Patterson will hope to use a relaunch of the group’s consumer strategy this week to buy enough time to rebuild the world’s oldest telecoms company and silence those investors questioning whether he can survive.

British Telecom (BT)'s headquarters is seen in central London, Britain May 10, 2018. REUTERS/Hannah McKay

Patterson became CEO in 2013 with a remit to transform BT into a modern communications provider, but after some early successes he has been brought back down to earth by the more mundane issues of regulation, pensions and accounting fraud that have damaged a company central to Britain’s economy.

News last week that BT would cut 13,000 jobs, close its London base and faced lower earnings capped a torrid two years when a fight with the regulator and a weak international performance led to a halving of the share price.

“Gavin comes with a consumer background,” one top 30 shareholder told Reuters on condition of anonymity.

“When you look at what the company has to go through over the next several years, which is manage a fibre to the home roll-out, deal with the regulator, carry through a cost-cutting programme, it’s not clear to me whether he’s your best choice for that.”

On Wednesday, BT will seek to fight back through its EE mobile operator, a five-year-old brand that is synonymous with superfast connectivity and which it acquired in 2016.

Patterson promoted its boss, Marc Allera, to run the whole BT Consumer division after the acquisition, seeking to bring the start-up vibe associated with the young digital brand to BT, which had struggled with a poor service reputation.

The 12.5 billion pound ($17 billion)purchase will feature at the heart of the new consumer strategy which is designed to encourage customers to take multiple services from BT in one package including broadband, telephony and mobile.

BT has already ripped out costs by negotiating better supplier terms and cutting jobs and property. Consumers should now also expect to see a more joined up offering too.

The purchase of EE from Orange and Deutsche Telekom has been one of Patterson’s strongest moves during a busy tenure.

The former marketing and consumer boss has also spent billions of pounds on sports rights, network investment and customer service improvements, all while trying to keep regulators, pension fund trustees and investors on side.

On top of that, fraud was discovered in Italy while the group was blindsided by a downturn in corporate and public sector markets, leading to a major profit warning in early 2017.

MASSIVE CHALLENGE

“Gavin has clearly been overwhelmed by the complexity of the various challenges that the business is facing,” Bernstein analyst Dhananjay Mirchandani said. “The results and the outlook clearly suggest that this is a business in massive structural transformation.”

In recent months BT has agreed a new funding plan to plug its 11.3 billion pound pension deficit, secured a new three-year term for Premier League soccer rights and agreed a content-sharing deal with arch rival Sky, giving some mid-term visibility.

But last week the cost of the tougher stance taken by the regulator Ofcom was also on display, with the hit to the business doubling from about 500 million pounds to 1 billion pounds a year as BT provides access to its network at a lower cost to rivals to promote take up of services.

Chairman Jan du Plessis, in the job since November 2017, praised Patterson for his strategy, particularly the purchase of EE, in a boost for the CEO. But analysts remain divided over other issues such as costly sports rights and the initially confrontational tone taken with the regulator.

BT argues that taking on Rupert Murdoch’s Sky to buy rights to show the likes of Manchester United, City and Liverpool has tied customers into packages and increased their loyalty.

But its critics argue the cost was too high and that loyalty could have increased with investments in the network, a move that would have been welcomed by government.

Although the company stressed its improved relations with the regulator, investors still fret the government and Ofcom could look to BT to carry the burden of any accelerated full national fibre roll-out as Britain seeks to catch up with European neighbours in upgrading its infrastructure.

On this investors are sympathetic, accepting there is no easy way to upgrade networks without huge investment. One top-50 shareholder said Patterson was under pressure, but it was not clear how replacing him would change the dynamics.

“Any growth option they pursue is potentially going to have no return on it because the regulator just wants to regulate your returns away from you,” the shareholder said.

While struggling on that front, BT will look to its consumer business to help it return to growth. It owns the number one mobile and broadband providers in the country.

“This really is a pivotal moment for BT,” Patterson said last week. “We need to make ourselves more efficient, we need to create oxygen within the business.”

($1 = 0.7364 pounds)

Additional reporting by Paul Sandle; Editing by Mark Potter

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