BT is the UK's leading telecoms provider, but suffered for several years from strategic blunders made in the 1990s. During that decade, BT set out to be "the most successful worldwide communications group" but somehow failed to build on its existing strengths and was outpaced by a series of more aggressive competitors including domestic rival Vodafone. The purchase of minority stakes in foreign competitors left BT with a huge debt mountain by early 2001, and the group was forced to sell off almost all of its international assets in order to repair finances and improve performance. With extraordinary lack of foresight, it also sold off its wireless division (subsequently relaunched as O2), with the result that BT became the only national telecoms carrier in any major market which did not offer a proprietary mobile service. A new management team had repaired much of the damage by the end of 2003 and launched a new expansion drive in the UK, including the aggressive roll-out of broadband, culminating in the launch of a internet-connected TV service in 2006. BT's international profile is still negligible by comparison with European rivals Deutsche Telekom, Orange and Telefonica, but the company finally re-established a dominant position in UK mobile in 2015 with the acquisition of local market leader EE.
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Adbrands Weekly Update 18th May 2017: UK telecoms leader BT reported a sizeable dent in profits for the year to March as a result of improper accounting at its Italian IT services subsidiary and a stiff fine from UK regulators over historical bad behaviour at its broadband division Openreach. Total one-off charges were almost £970m. However these were mostly offset by the addition of a first full year contribution from leading UK mobile service EE, which helped revenues to soar by 27% to £24.1bn. Nevertheless, pretax profits halved in the final quarter, lowering the annual figure by 19% to £2.35bn. The company announced plans to cut 4,000 back office and managerial jobs, and will pay no bonus this year to group CEO Gavin Patterson or its CFO.
Adbrands Weekly Update 30th Mar 2017: The UK's telecoms regulator Ofcom expressed its growing frustration with local market leader BT with an unprecedented fine of £42m, more than 10 times the biggest penalty it has ever previously handed down. BT must also pay a total of £300m in compensation to rival operators such as Sky and Vodafone. The case involves the UK's national fixed line cable network, owned and managed by BT's Openreach division, but also used by virtually all the country's other broadband providers. When they receive a new customer order, they rely upon Openreach to install the line within an agreed period of 30 days. However, historically, BT regularly missed that target and then used a contractual loophole to wriggle out of compensation payments. BT managers have acknowledged past poor performance. The company is currently attempting to mollify Ofcom and its rival operators to avoid a full forced separation of Openreach. It recently agreed to establish a separate board for that division to manage the business as a semi-independent entity.
Adbrands Weekly Update 16th Mar 2017: UK telecoms leader BT bowed to the inevitable, and agreed to separate out Openreach, the subsidiary which manages most of the country's broadband infrastructure, as a semi-independent entity. That follows years of pressure from regulator Ofcom and rival operators, who are obliged to rent space on the cable system, but rely on BT to maintain it. They argue that BT has failed to upgrade the network as quickly as other European operators because it's too busy spending its cash elsewhere, like on mobile business EE or to acquire high-priced football broadcast rights. BT was able to head off the threat of a full break-up by agreeing to set up an independent board for Openreach that will be able to determine how best to invest time and capital in consultation with all its customers, not just BT alone. That way, BT can still enjoy the financial benefits from Openreach, currently its most profitable division by far.
Adbrands Weekly Update 9th Mar 2017: UK telecoms giant BT was forced to dig deep into its pocket to protect broadcast rights for Champions League European football for its BT TV business. It extended the contract for another three years to 2021 for a whopping £1.2bn, around a third more per year than it currently pays. It defended the increase on the basis that the new deal includes exclusive rights to game highlights and clips, a package currently shared between ITV and News UK. BT plans to recoup some of the cost by wholesaling these to other media outlets. There are also additional broadcasting slots, including back to back games at 6pm and 8pm.
Adbrands Weekly Update 8th Dec 2016: UK telecoms regulators have called for leading operator BT to give up legal control of its Openreach division, which controls the country's phone and broadband network, and resells bandwidth to all other traditional phone and broadband suppliers. Having failed to reach a voluntary agreement with BT, Ofcom is lobbying the EU for a forced legal separation. Such a move is strongly opposed by BT and its biggest shareholder, Deutsche Telekom, not least because Openreach is the group's most lucrative business by far.
Adbrands Weekly Update 4th Feb 2016: UK telecoms leader BT completed its acquisition of mobile company EE, previously a joint venture between Deutsche Telekom and Orange. BT plans to retain EE as a separate business division alongside BT Consumer, with Marc Allera - currently chief commercial officer - moving up to divisional CEO in place of Olaf Swantee. Several other members of EE's senior team are also leaving including chief marketing officer Pippa Dunn, chief customer officer Francoise Clemes, and others. EE marketing director Spencer McHugh remains in place.
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Free for all users | see full profile for current activities: British Telecommunications was created in 1984 in one of the biggest ever UK share issues, when Margaret Thatcher's Conservative government privatised the country's national telephone service, previously part of the Post Office. The British Post Office had first secured exclusive rights to telegraph systems more than 100 years earlier in 1879, and over the following years, the government prevented private operators from competing in the domestic market. Instead rival services, such as the numerous telegraph operators who subsequently united as Cable & Wireless, mined the international market. Although a second company (The National Telephone Company) was briefly granted a license to operate a domestic service in the early years of the 20th century, the Post Office's monopoly continued uninterrupted until the 1980s.
Eventually, in 1981, in accordance with the Conservative government's belief in a free market economy, the telephone service was split out from the Post Office to form British Telecommunications. At the same time, Mercury Communications, controlled by Cable & Wireless, was given a license to launch a rival service. To allow the new British Telecommunications freedom to operate, it was privatised three years later (although the government retained a significant stake until 1993 and only sold its last shares in 2000). British Telecom became one of the best-known brands of the era as a result of a huge marketing campaign throughout the next two decades in which a series of personalities including cartoon bird Buzby, Jewish mother Beattie (played by actress Maureen Lipman, in ads created by JWT), actor Bob Hoskins and even ET (in ads by Abbott Mead Vickers) urged consumers to get on the phone and talk to each other (because "It's good to talk").
In 1983, BT dipped its toe into what were then the unknown waters of cellular communications, forming Cellnet with partner Securicor, best known for security services. The service launched in 1985. At the time, it was a huge gamble, but one that would ultimately pay off handsomely. Keen to broaden its services, BT acquired Canadian phone equipment company Mitel in 1986, and took a 20% stake in US mobile firm McCaw Cellular three years later (subsequently sold to AT&T). In 1994, BT made its first advances to US giant MCI, acquiring a 20% stake for $4.3bn, and setting up Concert Communications, a joint venture pooling the two companies' business networking services. An attempt to buy Cable & Wireless in 1995 was unsuccessful. Instead, the group turned to France, investing £1bn to become a partner in Cegetel, a newly created rival to France Telecom.
The relationship with MCI blossomed and in 1996, BT announced plans to buy the US company for $24bn and become one of the world's biggest phone companies. MCI was itself in the midst of expanding into local services in the US, but when these went less smoothly than expected, BT reduced its buyout bid to $19bn. As a result, US rival Worldcom jumped in to seize MCI with a massive $37bn offer in 1997. It was undeniably a blow to BT's ambitions, although the company secured a huge profit from the sale of its MCI stake. It took a year for BT to find a new partner for Concert, but in 1998 a deal with AT&T seemed to supply a happy solution to BT's dilemma. Under the new deal, BT and AT&T largely pooled their international business to provide the full range of international communications services to multinational clients under the Concert banner.
But BT was trumped once again in 1999 when mobile competitor Vodafone announced a staggering $36bn merger with America's AirTouch Communications, to become Britain's biggest communications business and its third largest company, pushing poor BT into fourth place. Reacting to this increased threat, BT began to make public its desire to buy out its partner in Cellnet, following the government's relaxation of monopoly regulations. Cellnet had continued to lag behind Vodafone and was in danger of being overtaken by newer competitors Orange and One2One. Securicor was bought out in 1999 for £3.15bn.
Around the same time the group added to its portfolio of international interests, previously largely concentrated in Europe. The group acquired minor stakes in a number of businesses including Hong Kong's SmarTone and Latin American internet network ImpSat. Partnering AT&T, it bought into Japan Telecom and Canada's biggest mobile phone operator Rogers AT&T Wireless. Closer to home it acquired Esat, Ireland's second biggest telecom company, as well as the 50% stake it didn't already own in the country's fixed line service Ocean.
Yet storm clouds were beginning to gather. BT's string of alliances now gave it minority stakes in numerous telecoms businesses worldwide. These generated a handy cash stream, but gave little voting power in the rapid consolidation of the industry that had begun in 1999. That summer two deals by Cable & Wireless placed sizeable UK assets in the hands of France Telecom and Deutsche Telekom. NTL, then part-owned by France Telecom, became the UK's biggest cable TV operator after buying Cable & Wireless Communications; while Deutsche Telekom acquired One2One, the smallest UK mobile phone service. Both companies threatened to increase their investments in their new UK businesses. BT came under growing pressure from press commentators and analysts. A deflated share price also led to warnings that the group might itself become the target of a takeover bid from stronger European players. Meanwhile Concert had proved nothing more than a drain on resources, as both BT and AT&T largely ignored the joint venture in order to focus on more pressing business at home.
BT did little to improve City sentiments with unexciting financial results for the year to 2000. Negative sentiment continued to grow, and BT's share price continued to fall. In an attempt to highlight the strength of the group's constituent businesses, BT unveiled a mammoth restructuring, promising to divide domestic operations into two separate businesses handling wholesale and retail operations while also spinning out four international businesses specialising in specific sectors. Some of these, BT promised, could later be spun off in a string of potentially lucrative IPOs. The need to raise cash became apparent a few months later when, at the height of the market, BT agreed to take control of its German joint venture Viag Interkom by buying out partner Eon for a whopping E6.65bn. (Only a year later the group was forced to write off almost half of that when values in the sector plummeted). The group also spent a fortune to acquire next generation 3G mobile licenses in the UK and Germany.
The situation went from bad to worse when BT was hit by a series of option calls. Believing the telecoms market would continue to soar, BT had agreed "put" options in several deals over the previous years, allowing its partners to force BT to buy their shares at a later date at a pre-agreed price. As share values generally fell, these options looked increasingly like a bargain for BT's partners. In 2001, the group was forced to acquire Norwegian telecoms company Telenor's small stakes in Viag Telekom and Esat Digifone for around £2bn. With BT's debt forecast to hit £28bn, the company began attempts to reduce this astronomical figure by announcing plans to sell and lease back its property portfolio. As the stock markets slumped later that year the group was forced to reconsider its previous plans to float or spin off its various subsidiaries as market sentiments turned against telecoms stocks.
By early 2001, press commentators and shareholders were calling repeatedly for a change of management. Finally group chairman Sir Iain Vallance stepped down in April, to be replaced by Sir Christopher Bland, the hard-nosed former chairman of the BBC. Bland immediately unveiled a series of changes including the sale of the group's large City of London HQ. The sell-off of assets continued apace, with the transfer of ISP LineOne (half-owned by BT) to Tiscali for E100m. BT also put its Japanese operations to the sword, writing off several years of hard negotiating to build up a profile in that country. It sold its stakes in both Japan Telecom and J-Phone to Vodafone, as well as its remaining stake in Spanish operator Airtel, raising a further $4bn to set against its debt mountain.
In 2001, the group unveiled its first ever loss, totalling more than £1bn. One of the biggest contributors was a £3bn write-down of the value of Viag. To cut into its debt, the group confirmed plans to demerge BT Wireless entirely, and sold its Yellow Pages division, Yell, to venture capitalists. But the most pressing need was to stop what had become horrific losses at Concert, estimated at a staggering $42m a month in the first three months of 2001. BT and AT&T agreed to shut down the business, taking back the parts of their international business communications services they originally contributed to the venture. But the exercise cost BT more than another £1.0bn in asset write-offs and losses. BT Wireless was finally demerged towards the end of 2001 as O2, and the group also sold off most of its remaining international assets. Bland also led a comprehensive shake-up of the remaining old guard among senior management. Sir Peter Bonfield, the chief executive who led the group's lavish acquisition spree in 1999 and 2000, was replaced in 2002 by Ben Verwaayen, former vice chairman of Lucent.
Over the next six years Verwaayen masterminded a rebuilding of the business, cutting costs and pushing aggressively into broadband services. He was also responsible for initiating a complex modernisation programme, named 21CN, in which BT plans to replace its collection of 17 separate networks with one larger and far more sophisticated system capable of handling more efficient fixed line and broadband connections. The new network was originally scheduled to launch in 2009, but a series of technical problems have consistently pushed back the expected date. 21CN is now expected to make its debut in 2011.
Ben Verwaayen stepped down as group CEO in June 2008, to be replaced by Ian Livingston, previously CEO of BT Retail. Sir Michael Rake replaced Sir Christopher Bland as non-executive chairman of BT Group in 2007. See full profile for current activities
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