BT boss: why a break up would be so hard to do

TO unsettle Sir Mike Rake, it would take a lot. As one of Britain’s most seasoned corporate operators, the 68-year-old has lived through multiple banking crises, boardroom battles and threats from rivals. But as we sit down to talk at the top of the BT Tower in central London, the roaring wind is slightly disconcerting. ‘It does sound rather alarming, doesn’t it,’ he says.

The Tower used to have a slowly-rotating restaurant open to the public, but dining there is now a privilege normally reserved for top BT staff and their guests, and for charity events.

If the stormy weather were not enough to make Rake nervous, then the prospect of being forced to split off Openreach, the division that controls the exchanges, along with the fibre and copper networks that power broadband, might give him pause.

Regulator Ofcom will shortly unveil a set of proposals for the next ten years of telecoms, including BT’s grip on Openreach. Rivals such as Sky and TalkTalk, which also use Openreach, have been arguing loudly for a break-up.

Unsurprisingly, Rake is having none of it, arguing that being part of BT has enabled Openreach to embark on investments that otherwise would not have happened.

‘In 2008 in the midst of the crisis we chose to invest in fibre. No-one else would have done that.

‘We are now working on different technologies to improve the speed and capability in the next two years. Much of this has been financed by our research centre in Martlesham which is outside Openreach and where we spend £500m a year.’

The current arrangement was set up following a strategic review of the industry in 2005, when the company set up Openreach at arm’s length, to manage the nation’s telecoms infrastructure. It has always claimed to offer services to other operators on the same terms as to BT. Competitors have, however, never accepted that it does not have an unfair edge.

RAKE accepts that BT and Openreach could have been decoupled a decade ago, but argues it is not practical now.

‘In 2005 we had choices we don’t have today,’ he says. At this stage, he claims there are formidable barriers to a split, including what to do about the £7bn pension fund deficit. ‘ Most of that relates to Openreach,’ he says. ‘If you try to spin it off now it would be a huge challenge. 30,000 people would have to be transferred, what about dividend policy and so forth?’

A split would, he claims, hurt the UK: ‘Everyone wants better broadband and they want it quickly. We have a plan, and that would simply be lost, because there would be at least two to three years of delay, which would not help the economy.’

He deflects questions about whether either or both firms would be vulnerable to predators once separated, simply observing that ‘there is no golden share, the UK is one of the most open economies in the world.’ If he will not concede ground on Openreach, Rake is prepared to admit that service has not been as good as it should be. ‘There should be continuing pressure on us to improve customer service and productivity, we accept that.’

The company won Money Mail’s 2015 Wooden Spoon Award for rotten customer service and Rake appears contrite.

‘Bluntly we offshored and outsourced too much. We shouldn’t have done and we are bringing it all back. 80pc of UK calls will be handled here by the end of this year,’ he says. ‘ We have not improved enough the productivity in Openreach and we have started on that.’

BT has also come under fire for spending large sums on getting into TV and for its £12.5bn takeover of mobile phone group EE. The fear is that ordinary customers who have no interest in football will be made to pay and that the EE deal will reduce competition.

‘Consumers have benefited,’ says Rake. ‘We provided competition on paid-for sport, we have reduced prices to pubs and clubs round the country by 50-60pc. Sky continues to have unregulated and huge domination of the pay-TV market place.’

The EE merger, he says, is not removing a mobile operator from the market as BT does not have one of its own, having sold the former Cellnet operation years ago to reduce its then monstrous debt pile.

JUST as he believes the time for splitting off Openreach has come and gone, so too, he says, has the moment at which the UK could have forged an independent path from the European Union. It is a view on Brexit that puts him in the majority amongst big business leaders, but one that will enrage many ordinary Britons and politicians in the opposite camp.

‘From an economic point of view a Brexit would be a huge leap into the unknown. A market of 500 million people is available to us, plus the security we get from being part of that union, the huge advantages we get from treaties – we haven’t done a bilateral trade deal since 1967 or something. To think we have an option that is easy to go to….

‘We are not big enough to stand alone. In 1975 you could have possibly built different arrangements, but it is a different world now.’

But didn’t the business lobby put forward equally lurid threats of how badly the UK would fare if we stayed out of the single currency, I ask Rake, a former president of the Europhile CBI.

‘If the UK had been in the euro the financial crisis would have been much more pragmatically dealt with,’ he claims – though many will find the assertion less than convincing. He does admit that ‘as it has turned out it was better we weren’t in it.’

As well as serving as long-standing chairman of BT, Rake also chairs Worldpay, a financial technology group spun out of RBS. ‘This is an example of where private equity have come in, rescued an organisation, invested and created jobs and growth,’ he says of the company, which listed on the stock market in a £6bn float last year.

Until recently he was deputy chairman of Barclays where he was instrumental in getting rid of former chief executive Antony Jenkins, who failed to bring inspiring leadership to the high street lender.

In 2013 he stepped down as chairman of budget airline group EasyJet after three years of battling with founder Sir Stelios Haji-Ioannou.

Politically, he is concerned at rising inequality, the difficulties faced by the younger generation and the surge in populism, with individuals such as Jeremy Corbyn here and Bernie Sanders and Donald Trump in the US gaining support.

‘It’s simple to be populist but life is not that simple.’ Indeed not.