The Glaswegian taking on threat of a German takeover of BT
Allison Kirkby also faces a Vodafone/ Three merger and a huge unionised workforce,
As Allison Kirkby takes the reins at BT today, she will be acutely aware of the task facing her. As chief executive of the former monopoly, Kirkby will be in charge of a lumbering £11bn behemoth that employs 130,000 people across divisions including the EE mobile network and broadband unit Openreach.
However, BT’S difficulties are not limited to scale. The company is facing the prospect of a major new rival as Vodafone and Three aim to combine forces in a £15bn mobile merger.
Competition from alternative broadband providers, which are racing to roll out their own full-fibre networks, also remains strong. That is without considering that BT’S shares are at near three-year lows, putting the company at risk of a potential takeover bid.
Both French billionaire Patrick Drahi and German telecoms giant Deutsche Telekom have scented an opportunity in the past 18 months by building up their stakes. So as Kirkby settles in, she faces a fundamental question – does she attempt to shake up BT, or merely keep a steady hand on the tiller?
“This is one of the most difficult jobs in Britain and there’s no shortage of people who think they can do it,” says one veteran industry source. “But often they’re having to run just to stand still.”
Kirkby, born to a working-class family in Glasgow, boasts an impressive CV. After cutting her teeth at consumer goods giant Procter & Gamble, much like her two predecessors, she joined Virgin Media. After then being overlooked for the role of finance chief at Manchester United, Kirkby decamped to Scandinavia, where she led a string of mobile companies, most recently Sweden’s Telia.
Now, the 56-year-old has returned to the UK to become the first female chief executive in BT’S 180-year history.
Having served as a non-executive director since 2019, Kirkby is wellversed in the ways of the giant.
“She’s all signed up to the strategy,” says Karen Egan, head of mobile at Enders Analysis.
“None the less, you will expect her to want to make her own mark somewhat, and I suppose there’s probably a bit of nervousness about what that might look like.”
The industry source adds: “It is a bit of a dilemma as she’s been billed as continuity but shareholders can’t be happy. It is unimaginable they are sitting there thinking everything’s great.” If Kirkby is seeking a challenge to make her mark, she has plenty to choose from.
Looming large is the planned merger between Vodafone and Three, which will create the UK’S biggest mobile operator with 27m customers.
The deal threatens to create a rival that will challenge EE’S dominance at the top end of the market. As a result, Kirkby is expected to reconsider the split of capital expenditure between fixed and mobile services, potentially siphoning money away from the broadband rollout to provide EE with more financial firepower.
Yet BT must continue to commit billions to its Openreach division as it faces competition from so-called alt-net rivals such as Cityfibre, which are building their own full-fibre networks. In November, BT said it lost 155,000 broadband customers and warned losses could top 400,000 across 2024.
“We’ve got to go as big as we possibly can on both mobile and fibre,” says one insider. As a result, other parts of the group may be up for review.
In 2022, BT merged its ailing enterprise and global divisions in a move it said would save £100m. But the newly combined unit continues to lag the wider company, with profits tumbling 11pc in the first half of the year.
Sources say Kirkby has concerns about the efficiency of BT Digital, an IT division led by Harmeen Mehta, and could review this structure.
Leadership changes could be on the cards, too. It is expected that Kirkby will look for a new chief financial officer to replace Simon Lowth, who has held the position since 2016. There are questions over the future of EE boss Marc Allera after he was overlooked for the top job.
The most radical option would be an attempt to spin off the consumer EE division. BT is prioritising investment in EE and is pushing it into new areas such as smart fridges and insurance.
Such a move would be less complicated than the long-mooted spin-off of Openreach, which is more closely linked to BT’S pension scheme. Yet it would still mark the biggest shake-up of the telecoms giant in years.
As Kikby mulls these options, she is facing unwanted scrutiny from investors. BT is being shorted by hedge fund Kintbury Capital amid concerns the stock is relatively illiquid, with power concentrated among a few large shareholders. More concerningly, there are signs these investors could be plotting a swoop.
French billionaire Patrick Drahi has increased his shareholding to 24.5pc, just shy of a blocking stake. At 25pc he would be able to oppose shareholder resolutions. Drahi has said he does not intend to make a takeover offer, but his manoeuvres have sparked concerns internally about his “creeping control”. Meanwhile, BT is working with advisers at Robey Warshaw and Goldman Sachs amid fears that Deutsche Telekom, which owns a 12pc stake, is preparing a takeover offer.
A potential bid is not without its complications. Drahi’s stake-building has already attracted a national security review and any German swoop would likely come under scrutiny given the critical nature of BT’S infrastructure.
This could be further complicated by the arrival of a Labour government, which is likely to take a dim view on any further attempts to cut BT’S heavily unionised workforce.
There are more prosaic difficulties, too. BT has the largest private sector pension scheme in the UK, with roughly 270,000 members and £37bn of assets. In November, bosses announced the company had shrunk the deficit by £4.7bn and said it was on track to eliminate it by 2030. Still, pension liabilities have long muddied the water for any break-up or acquisition of BT.
Rising interest rates have also taken their toll on BT’S finances as it invests billions of pounds into its full-fibre network. Net debt stood at £19.7bn at the end of September – an eye-watering sum that could also act as a deterrent to potential suitors.
Nevertheless, Kirkby will be acutely aware of the takeover threat, and staving it off will be a key priority.
Insiders expect Kirkby to be more hands-on than her predecessor Philip Jansen, who courted controversy over ill-advised comments that the full-fibre race would “end in tears” for BT’S rivals.
Greg Mesch, chief executive of Cityfibre, says he expects BT to move into “more of a rational environment” under Kirkby’s leadership. He adds: “Philip’s done this spray and pray, which is to put [full-fibre] out there everywhere and hope that competition goes away. That didn’t really work.” Kirkby must also look to build relations with staff and unions as she pushes through plans to cut 55,000 jobs by the end of the decade.
“She’ll have to give people a sense of purpose, a sense of direction,” says the industry source. “These are the usual things when a new chief executive comes in – they’ve got to create hope, and keep hope alive.”
As Kirkby takes up the top job, she must decide whether continuity or change is the right answer. The latter may be easier said than done, though. Many a new BT boss has promised radical overhaul, only to be swept up in the behemoth’s bureaucracy.
“I’m not a huge fan of all this tinkering and restructuring in telecoms companies, just to make your mark as a new chief executive,” says Egan.
“BT is not a place for revolutions.”
‘This is one of the most difficult jobs in Britain and there’s no shortage of people who think they can do it’
‘She’ll have to give people a sense of purpose, a sense of direction’