BTwatch, issue 2008.02

19 April 2008

BT GROUP: Ian Livingston is to replace Ben Verwaayen as BT Group Chief Executive. The announcement of Verwaayen’s resignation draws to a close speculation about his future with the company. BTwatch considers the outgoing executive made significant progress in moving the telco forward, but a new approach is now needed — it will be interesting to see if Livingston lives up to his reputation as a safe pair of hands in potentially troubled times. BT also announced the appointment of parliamentarian Patricia Hewitt and LloydsTSB Group Chief Executive Eric Daniels as non-executive directors. [pp.2-5,6.]

BTwatch

Issue: 2008.02
Covering: 19 February to 14 April 2008
Published: April 2008
Next issue: May 2008

Mapping the maze of the UK’s largest telco. A unique monthly report for the industry.

Summary
Extract
Table of Contents
Index

SUMMARY

STRATEGY & OPERATIONS: BT introduced a new addition to its web services portfolio with CallFlow, a tool enabling voice and data integration without the need for complex interactive voice response platforms. The application, available as part of a software delivery kit, was deemed another successful outcome from the investment in 21CN. Elsewhere, a Welsh council highlighted its investment in ensuring its emergency telecare systems would work with the next-generation network — a first indication that public sector and industry may have to spend time and money to ensure important legacy systems will be unaffected by the 21CN switch, possibly causing further rollout delays. BT has removed information about switch-over plans from its 21CN public information website, and missed targets for its migration in Wales. [pp.7,8.]

BT announced it had opened a new operations centre in India, supporting procurement, legal, finance, and human resources functions. Tech Mahindra also trumpeted a five-year £177m maintenance and support contract with BT, which is apparently part of a BT drive to find “transformational” outsourcing deals. [p.10.]

BT executives once again heralded the Group’s transformation to a more agile and flexible business, but continued insistence that the Group has overcome cultural resistance to change suggests to BTwatch that this problem just won’t go away. [p.9,32.]

BT acquired a spectrum licence that can be used for in-building wireless broadband, paying £183,000. [p.11.]

BT RETAIL: BT signed a deal to participate in a new online advertising system from a company called Phorm, which has potential to generate revenue from advertising targeting its broadband customer base. However, Phorm’s software, which is alleged to have its roots in spyware, has attracted controversy and generated widespread concern about online privacy. [pp.12-14.]

BT took the moral high ground and abandoned charging customers for support calls, and called on its rivals to follow suit for the good of consumers. Meanwhile, a court case brought by a pensioner protesting BT’s additional charges for paying bills by cheque garnered significant media publicity. BT was also under fire for apparently luring consumers into auto-renewing twelve-month contracts they will have to opt-out of in the future, while it had to backtrack on similar plans for small business customers after protests from partners and industry groups. [pp.15,16-17,18.]

BT Openzone and Sony launched Go!Messenger, a wireless communication package for the PSP handheld gaming device. BT also agreed a deal with BA to offer free Wi-Fi access in the airline’s executive lounges. [pp.17-18.]

BT Business launched a new virtual PBX for small business customers, based on software solutions from US company RingCentral. It also expanded availability of its Office Anywhere mobile office solution as a bolt-on. [pp.19,18.]

BT GLOBAL SERVICES: BT announced a £62m network-outsourcing deal with accountants KPMG, covering operations in the UK and Germany, where the telco’s Chairman Sir Michael Rake was previously in charge. BT is also to become global network partner for pharmaceutical company AstraZeneca under a £25m deal. The BT-HP alliance won a contract with pharmaceuticals company Nycomed, and deals were also trumpeted with fashion company Tommy Hilfiger, German customer-care company core connection, and Hong Kong brokerage CLSA. [pp.20,21, 22.]

BT looked set to further extend an ICT outsourcing contract with Edinburgh Council, and announced it is to work on a new communications system for North Yorkshire County Council. The telco is also providing its Mobile Health Worker solution to field nurses in the North Lincolnshire region. [pp.23,24.]

BT launched Onevoice Mobile Access, which enables customers to make international calls from mobiles for the price of a local call, and demonstrated the Mobile Workforce Management solution, designed for large companies with significant numbers of staff in the field. It also unveiled Pharmaceutical Records and Information Management, a secure network-based information platform for the pharmaceutical industry, the Connected Retailer Store Solution for retail businesses, and a new security compliance service for credit card payments. BT is also working with Avaya, to provide bundled solutions for voice, data, and support. [pp.29,25,29,30.]

BT is expanding its presence in Austria, and named a new Chief Executive to build its business in the Nordics region. In the Middle East, a new research facility was established, and BT is thought to be in the running to secure a new fixed-line telecoms licence in Qatar. [pp.26,28.]

BT is to acquire Wire One, a US-based video-conferencing solution provider, from private equity firm The Gores Group. [p.31.]

BT WHOLESALE: Vodafone and BT Wholesale agreed a managed services deal that will see BT provide Ethernet services for backhaul to the mobile operator, as Vodafone’s levels of voice traffic and demand for data services continues to rise. [p.34.]

BT WHOLESALE: BT Wholesale is to launch a new self-install product that will reportedly improve broadband speeds for customers afflicted by electromagnetic interference. The BT unit also called on the industry to rein in over-ambitious claims of potential speeds from ADSL connections. [p.33.]

BT Wholesale provided indicative pricing for its 21CN-based broadband services, with the cost of having a presence at aggregation points nationwide almost halving, but bandwidth charges jumping upwards. [p.35.]

OPENREACH: The OTA2 reported that there are more than four million unbundled lines in the UK, and praised Openreach for continuing efforts to improve its support to the industry as a whole, although it also highlighted areas in which it still needs to improve. The BT access services division is to be subject to tougher penalties for failing to meet its service obligations following an Ofcom direction. [p.36,37.]

REGULATORY: The European Union gave the go-ahead for Ofcom to introduce an element of regional regulation in the wholesale broadband market, which could see BT’s assignment of significant market power removed in parts of the UK. [p.38.]

CITY REPORTS: BT issued bonds valued at $750m. The company was also subject to more claims that its pension deficit is substantially under-estimated. [p.39.]

EXTRACT

Livingston to replace Verwaayen as BT head

BT Group announced that its Chief Executive Ben Verwaayen was to stand down from his role at the end of May 2008 and leave the BT board at the end of June 2008. He will be replaced in the Group Chief Executive role by Ian Livingston, current BT Retail Chief Executive.

The announcement of Verwaayen’s departure marks the end of the Dutch executive’s six years at the company, and a widely predicted shift to the top job for Livingston. Livingston is to be replaced by Gavin Patterson, currently Managing Director of BT Retail’s Consumer business. There was no indication of next steps for Ben Verwaayen in the BT announcement.

Mission accomplished for Verwaayen?

Ben Verwaayen arrived as Group Chief Executive, replacing Sir Peter Bonfield in early 2002, greeted by a media chorus of “Ben Who?”. At around the same time, Livingston joined as Finance Director replacing the well-regarded Philip Hampton, who moved on after a very short but impressive stint at the telco. (As an interesting side note, around the time of the executives’ arrival, BT was the subject of speculation and debate as to whether it should enter the television broadcast field, and attempt to compete with triple-play cablecos, something that did not become a reality for another five years, and with still limited success.)

Verwaayen set out his objectives for BT soon after his arrival, which were described by the markets as “reassuringly boring”, after the struggles BT had experienced due to over-expansion and mis-management. Among his goals was an acceleration of broadband uptake — something he successfully oversaw and facilitated with moves to put BT Wholesale in sole charge of UK networks, and the introduction of a “no-frills” consumer offering. He also aimed for realistic growth at BT Global Services (then BT Ignite), resisting calls to sell off the unit. Instead, he proposed a planned withdrawal from non-profitable small- and medium-sized enterprise (SME) and consumer segments, and wanted to focus on multi-site corporations and building business with existing customers — a strategy that saw significant growth at Global Services, although the success has yet to translate into acceptable levels of profitability.

Another ambitious project undertaken by BT under Verwaayen is the decision to aim for a world-first in shutting down the BT PSTN (public switched telephone network), and the introduction of the all-Internet Protocol 21st Century Network (21CN). Announced as a five-year project in 2003, the network initiative is beginning to see signs of coming to fruition now, after delays caused by unrealistic timeframe targets (BTwatch, passim). In the short term, the ambitious £10bn plan is suffering from developments in the market such as unanticipated demand for broadband bandwidth and the rollout of rival ADSL2+ networks by competitors, leaving BT far behind. The apparent appetite for a move to fibre-to-the-home and advent of mobile broadband could also lead to some difficult questions about BT investment plans.

Verwaayen also oversaw the BT ‘settlement’ with the regulator and the creation of Openreach, a model for network separation that is being examined and emulated around the world. The decision by BT to pursue a settlement, leaving behind years of regulatory skirmishes, was a bold one, and appeared to be agreed largely on BT’s terms (BTwatch, 2005.02). However, there is an extent to which BT has not been able to match the performance levels its ambitions required. The market moved quickly once BT’s networks were opened up, and BT has failed to obviously benefit.

Verwaayen also experienced the embarrassment of retracting growth targets announced in his first presentations, just six months after they had been revealed, having to admit they were over-stretching the company’s abilities and detracting from progress in other areas. Verwaayen’s promise of financial discipline and tough but attainable targets appeared to have impressed the City during his tenure, but doubts are now emerging (and BTwatch has long been suspicious of BT’s ability to move goalposts in this regard).

The final months of Verwaayen’s reign at BT, most notably after the departure of Sir Christopher Bland, have seen Verwaayen move away from his intentions upon joining the company of balancing the core business with expansion. To BTwatch, it has seemed that the denigration of BT’s core network business and significant consumer retail presence in favour of an image as a networked IT services provider has been more about Verwaayen positioning himself as a technology and business leader, than promoting the company’s long-term interests.

It looks as if, at the end, BT could not move fast enough for Verwaayen, renowned for impatience for progress, and with an organisation that still appears to require a change in culture to match its changing focus; it could be that a change at the helm became necessary to complete an ambitious project that ultimately helped re-establish BT’s tattered reputation.

Livingston gets expected promotion

There was little surprise that Ian Livingston was named as Verwaayen’s successor — the BT Retail Chief Executive was surrounded by a distinct impression of “heir-to-the-throne” in recent months. The theme of Livingston’s career at BT has been as “a safe pair of hands”, and this looks set to prevail in his time in the top job.

Yet the BT Retail business he leaves behind has struggled to move forward in the three years he led the division. BT Retail has had recent success in terms of broadband customer acquisitions, and Livingston made real progress in turning around the financial performance of the business, but new product launches such as BT Vision and BT Fusion have been over-hyped and underperforming. Efforts were made to instil customer loyalty through new offerings such as these and other value-added services, yet the recent decision to drastically raise prices for the rump of customers not signing for a renewable opt-out twelve-month contract would indicate this approach has been a failure (see separate report). Certainly, the SME unit of the Retail division has progressed under Livingston, although from an already weakened position and with much switching and swapping of customers and responsibilities with BT Global Services in the UK.

Why change now?

The decision to move now and replace Verwaayen with Livingston comes at the end of a period of executive upheaval on the BT board. With Livingston’s move, Finance Director Hanif Lalani will be the only person filling the same role should the new board be compared to a snapshot from just over a year ago. With the company in the middle of an organisational overhaul (BTwatch, 2007.04), and a Chief Executive in Verwaayen whose exit was considered a matter of time, a quick decision does seem a good idea.

Could it be that Livingston pushed for the change, despite rumours suggesting a more drawn-out departure for Verwaayen (see separate report), or has Sir Michael Rake concluded that his vision for BT requires a new ally in place?

BTwatch’s first thoughts on the future for BT

There are indications that BT could be heading for less than impressive full-year results, and there may be more pain ahead in the restructure; having a Chairman and Chief Executive who can, to varying degrees, be considered blameless could help the company draw a line under past sins.

BTwatch expects to see an acknowledgement of failure within the next year, perhaps as early as at the Q1 presentation for next year — leaving a respectful period after the departure of the old guard, and just as the summer takes the heat out of City vigilance. This could be accompanied by a radical strategy shift or serious re-examination of the company’s goals.

Should Livingston continue as Group Chief Executive as he has acted at BT Retail, numbers could improve in coming years, but possibly at the expense of some of the important medium- and longe-term changes that are currently incomplete. This scenario could see a future sale of the company to a bigger European rival, or private equity interest could return.

Of course, there is always the possibility of little change in the short term, with results juggling continuing, self-aggrandising talk of performing as a networked IT services provider, and “jam tomorrow” promised.

Further consideration of the consequence of Verwaayen’s departure will feature in the next BTwatch.

[BT, 8 April 2008, BTwatch, passim.]

Livingston conducts interviews after appointment

Ian Livingston conducted a round of press interviews following the announcement of his appointment as Group Chief Executive. Among the indications of his priorities upon taking on the new role included a view on the future of fibre networks in the UK and BT’s Universal Service Obligation (USO).

Livingston expressed concern about BT being required to pay compensation to competitors who have made substantial investments in local loop unbundling if a fibre rollout was to make the copper network obsolete. There was a comment in the Financial Times that Livingston would be prepared to “look at” WiMAX-based services.

The new Group Chief Executive also used the opportunity to complain that BT is still the only telco with universal service obligations. To BTwatch, this complaint seems a little incongruous and perhaps shows BT attempting to portray itself as a victim in the press. With the potential rollout of fibre set to cost in the billions of pounds, and BT’s annual turnover at around £20bn, a £50m-£70m annual investment in the USO, which is not without measurable benefits to BT (BTwatch, passim), seems somewhat petty.

Livingston’s appointment was praised for bringing in a leader with a reputation for attention to detail, but this statement does not give the impression of an executive with a well-thought out strategy for his accession, although perhaps he is planning to keep it under wraps for now.

” We will not spend material amounts of money that will guarantee that we lose money for shareholders. It’s just not going to happen…We want changes to the USO to reflect a fibre world. There are 200-odd service providers. Why should all the USO fall on BT Retail? “ — Ian Livingston.

[Financial Times, The Times, 12 April 2008; The Sunday Times, 13 April 2008; The Scotsman, 14 April 2008.]

“…OUT OF CONTEXT…”

” [Verwaayen] has been an exceptional [Chief Executive] whose courage and leadership has transformed BT from being a deeply troubled organisation into a thriving business with global capability and a clear strategy for the future. The board has been involved in the process of transition for many months to ensure an orderly succession. [He] has done more than anyone else to make Britain the most competitive broadband market in the world. He has been instrumental in restoring pride in BT. Everyone in the company owes him a huge debt of gratitude and wishes him well for the future. “

” [Livingston] was the board’s unanimous choice to succeed [Verwaayen] in June [2008]. His record of achievement at BT and before that at Dixons is outstanding. He has a deep understanding of BT having served as both Group Finance Director and Chief Executive of BT Retail. He will continue to deliver on a proven strategy. We share a vision of the future for BT as the leading communications services company, both in the UK and globally.”
– Sir Michael Rake, BT Group Chairman.

” I have had six exciting years and I am extremely proud of the people in BT. Without them, the company’s recent success would not have been possible. I owe a particular debt of gratitude to the executive directors who have served alongside me on the Board. Francois Barrault and Hanif Lalani have made a magnificent contribution. They are outstanding leaders. Ian Livingston will lead the company from strength to strength when he takes over as Chief Executive in June [2008]. He is a great guy with a fantastic record of business achievement. ”
– Ben Verwaayen.

” Ben has been a tremendous Chief Executive. He has changed BT through his passion and leadership. His informality and approachable style have won him the admiration and respect of everyone in the business. BT is a great company with a strong history and an even more exciting future. I am very proud to have been chosen as its next CEO. ”
– Ian Livingston.

It is perhaps notable that Ben Verwaayen did not mention Sally Davis, BT Wholesale Chief Executive, when applauding his colleagues on the BT executive board. This could indicate that the once-dominant but now struggling BT Wholesale division has now lost virtually all its clout. Consequently, an amalgamation with BT Global Services UK might not be far away.

[BT, 8 April 2008.]

Analyst reaction

” [Livingston] is unlikely to steer BT on a substantially different course to the one on which it is currently. ”
– Martin Mabbutt, Nomura analyst.

” [Livingston] should bring a more direct and focused style in comparison to Ben’s more visionary one…this announcement comes after two relatively poor quarters and with outstanding questions around 21CN capex. There will be some investors who will worry that Ben has concluded that the issues will take a long time to solve and that the solutions will be difficult. ”
– Dresdner Kleinwort research note.

[Thomson Financial, 8 April 2008.]

Rumours of a drawn-out succession precede sudden announcement

Prior to the BT announcement of the changing of the guard, it had been reported that BT was just beginning the search for a replacement to Ben Verwaayen.

Reports in the Daily Telegraph, citing “people close to the company” said Sir Michael Rake had told associates that succession planning is his priority in the coming year. However, as executive search agencies had not been appointed at that time, it was thought there was a strong likelihood that any handover would stretch into 2009.

Ian Livingston was named as a potential internal successor, although there were also suggestions that BT was to undertake a global search for a replacement.

Reports in The Financial Times had indicated that Verwaayen might delay his departure until the company’s performance improves — suggesting that a near-term exit could see Verwaayen leaving under a cloud.

It was subsequently noted in the Daily Telegraph that Ben Verwaayen’s home in Surrey was being advertised for sale at £4m, fuelling rumours that his departure was imminent. A spokesman for the BT Chief Executive said at the time “it just means he’s moving house”.

[Daily Telegraph, Financial Times, 9 March 2008; Daily Telegraph, 27 March 2008.]

2 BT Group
2 Acquisitions and disposals;
Appointments;
Appointment quotes
4 Analyst reaction;
Verwaayen departure
5 Employment; Property;
Sponsorship 6 Legal
7 strategy and operations
7 21CN
8 Intellectual property
9 Executives
10 Operations; Outsourcing;
Research 11 Technology
12 BT Retail
12 Advertising; Appointments; Broadband
15 Consumer; Society
17 Vision; Openzone
18 Business
20 BT Global Services
20 Acquisitions and disposals; Contracts 21 Competitors
23 NHS contracts;
Public sector contracts
24 Asia; Global financial services
25 Europe 26 INS
28 Middle East; Research
29 Products and services
31 Acquisitions and disposals
32 Executives
33 BT Wholesale
33 Broadband 34 Contracts
35 21CN
36 Openreach
36 OTA2; Employment
37 Undertakings
38 Regulatory
39 City reports
39 Brokers’ reports; Pensions
40 INDEX

INDEX

A
Accenture, 6
AOL, 12
Apple, 8
AstraZeneca, 21
AT&T, 26, 28
Avaya, Inc., 25
B
Barclays, 39
Barclays Capital, 39
British Airways, 18
British Broadcasting Corporation, 12, 13, 16, 33, 38
BT Buynet, 15
BT Group, 2, 5, 6, 9, 10, 20, 39
Asia
Tech Mahindra, 10
BT Exact
Adastral Park, 9
BT Global Services, 6, 11, 20, 21, 22, 27, 28, 29, 30, 31, 32
BT Asia Pacific, 24
BT Benelux, 20, 30
BT Germany, 22, 25, 26
BT Health, 23
BT International, 24, 25, 28
BT Italia, 29
BT Onevoice, 29
BT Onevoice Mobile Access, 29
BT Radianz, 28
Connected Retailer Store Solution, 30
Mobile Workforce Management, 25
Net2S, 20
Pharmaceutical Records and Information Management, 29
Spain, 38

BT Retail, 5, 12, 14, 15, 16, 17, 18
BT Business, 18, 19, 27
BT Conferencing, 31
BT Consumer, 16
BT Fusion, 25
BT Government, 23, 24
BT Ireland, 27
BT Mobile, 23
BT Openzone, 17, 18
BT Payment Services, 15
BT RingCentral, 19
BT Tradespace, 7
BT Vision, 2, 17
BT Webwise, 12
Direct Debit, 15
Together, 21, 23
BT Tower, 5
BT Wholesale, 33, 34, 35
iPlate, 33
IPStream, 35
IPStream Connect, 35
Office Anywhere, 18
Wholesale Broadband Managed Connect, 35
Directors
Daniels, Eric, 6
Hewitt, Patricia, 6
Nelson, John, 6
Rake, Sir Michael, 20

Executives
Alvarez, Luis, 38
Barrault, François, 32
Bowen, Laurie, 21
Bross, Matt, 9
Campenon, Olivier, 26
Davis, Sally, 34
De Coster, Michel, 30
Eveleigh, David, 6
Frischauf, Michael, 26
Geldmacher, Jan, 26
Hill, Stuart, 23
Livingston, Ian, 5
Ma, Allen, 24
Mahajen, Rakesh, 27
McCormack, Aaron, 31
Moir, Gordon, 6
Murphy, Bill, 19
Patterson, Gavin, 15, 16
Quartermaine, Mark, 23, 24
Rangaswami, JP, 7, 9
Selly, Clive, 10
Smart, Tim, 20
Söderberg, Roger, 26
Stanton, Ray, 31
Teske, Steffen, 22
Verwaayen, Ben, 10
Openreach, 36, 37
WLR3, 36
Strategy and Operations
21CN, 7, 8, 34, 35
BT Design, 9

C
Cable and Wireless, 39
Caerphilly County Council, 8
Cambridge-MIT Institute, 9
Carphone Warehouse, 12, 16
TalkTalk, 12, 16
CeBIT, 25, 29
Channel 4, 16
Cisco Systems, Inc., 20
Citigroup, 39
CLSA Asia-Pacific Markets, 24
Communications Workers Union, 5, 9
core connection GmbH, 22
Credit Suisse, 39
D
Deutsche Bank, 39
Deutsche Telekom
T-Mobile, 11
UK, 11
Devicescape, 10
E
Edinburgh Council, 23
Epitiro, 13
ESPN, 2
ETISALAT, 28
European Commission, 38
European Union, 38

F
France Télécom, 25, 26
Orange, 11, 26
Frontline Technologies, 20
Fujitsu, 7, 21
H
Hewlett-Packard, 21
HSBC, 39
I
ictQatar, 28
I.Net, 29
ING Bank NV, 39
Investec, 12
Isle of Wight music festival, 5
ITV, 2
J
JCDecaux, 12
K
Khalifa University, 28
KPMG, 20
L
Lloyds TSB, 6

M
Microsoft, 18, 20, 21, 30
Ministry of Defence, 6
N
National Health Service, 23
Nortel Networks, 26
Northern Lincolnshire Health and Social Care Community, 23
North Yorkshire County Council, 24
O
Ofcom, 6, 11, 16, 17, 18, 33, 37, 38
Carrier pre-selection, 36
LLU, 36
USO, 5
Wholesale line rental, 36
Office of the Telecommunications Adjudicator, 36
OTA2, 36
Ovum, 21, 25
P
Panasonic, 23
PCCW, 28
Pembroke College, 9
Phorm, 12, 13, 14
Police Service of Northern Ireland, 21

R
Radianz, 24
RingCentral, 19
S
Scope, 15
Setanta, 2
Siemens, 26
Sony, 17
PlayStation Portable, 17
SWS Business Process Outsourcing, 27
Symbian, 29
T
Tech Mahindra, 10
Technologies
3G, 6
ADSL, 33
ADSL2+, 7, 33
Broadband, 12, 13, 20, 22, 25, 27, 33, 34, 35, 38
Convergence, 12
DSL, 20, 33
Ethernet, 7, 24, 26, 34
GPRS, 23
ICT, 23, 29
IP, 14, 20, 22, 25, 26, 29, 31
IPSec, 20
IPTV, 2, 17
ISDN, 25
IVR, 7
Java, 29
MPLS, 20, 21, 27
PSTN, 7, 8, 18, 22
R&D, 29
VoIP, 18
VPN, 24
Wi-Fi, 10, 17, 18
WiMAX, 5, 25
Telefónica, 25
Telkom, 39
Tiscali SpA, 2
Tommy Hilfiger, 20

U
UPS, 24
V
Virgin Media, 2, 12
VMware, 11
Vodafone, 25, 28, 34, 39
W
Wholesale Broadband Connect, 35
Y
Yorkshire Forward, 24

Written by AB · Filed Under KnowBT

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