Of­com: new BT boss must boost broad­band

It’s been an event­ful five and a half years at the helm, but BT’S out­go­ing boss is proud of his record, finds Christo­pher Wil­liams

The Sunday Telegraph - Money & Business - - Front page - By Christo­pher Wil­liams

OF­COM has warned in­com­ing BT chief ex­ec­u­tive Philip Jansen that the com­pany must com­mit to more broad­band up­grades, de­spite de­mands on him to main­tain div­i­dend pay­outs.

Sharon White, the reg­u­la­tor’s chief ex­ec­u­tive, said Gavin Pat­ter­son, who is due to step down from BT at the end of the month, would leave the com­pany “well po­si­tioned to in­vest sig­nif­i­cantly in fi­bre”. She added: “The com­mit­ment to date is a good start, but it is only a start, and the com­pe­ti­tion is com­ing over the hill.”

The com­ments are a clear sig­nal to Mr Jansen that he will be un­der im­me­di­ate pres­sure to boost in­vest­ment.

BT has so far com­mit­ted to fund full-fi­bre lines for three mil­lion homes, or just over one in 10. Mr Pat­ter­son un­der­lined the ten­sion faced by Mr Jansen with a de­fence of BT’S div­i­dend, which has been main­tained de­spite a slump of more than 40pc in its share price. Some City an­a­lysts believe the div­i­dend must be cut to fund in­vest­ment.

How­ever Mr Pat­ter­son said that af­ter a tor­rid pe­riod the com­pany is per­form­ing strongly and added: “I would point to the fact that the div­i­dend is de­cided by the board and it was very clear that we are main­tain­ing it.

“There’s plenty of value we can cre­ate, to cre­ate head­room to in­vest and con­tinue to pay div­i­dend.”

‘It felt as though, in that pe­riod, ev­ery rub of the green went against me,” says Gavin Pat­ter­son, re­call­ing the calami­tous run of events two years ago that led to his cur­rent predica­ment.

In the early months of 2016 reg­u­la­tors stymied and fined the BT chief ex­ec­u­tive, Ital­ians swin­dled him and even Don­ald Trump put the boot in by crush­ing his hopes of mak­ing it big in Amer­ica.

Pre­vi­ously a swashbuckling star of bold ini­tia­tives and am­bi­tious deal mak­ing, Pat­ter­son has been on his way out ever since. All the share price gains he made have been wiped out and then some.

It has been a very long good­bye. BT chair­man Jan du Plessis, ini­tially sup­port­ive but mind­ful of his hard-nut cre­den­tials in the City, called time on the Pat­ter­son era back in June, af­ter a strate­gic over­haul and 13,000 job cuts failed to re­store the faith of in­vestors.

He has du­ti­fully awaited his suc­ces­sor, over­see­ing a marked im­prove­ment in fi­nan­cial per­for­mance, but Pat­ter­son’s lame duck ad­min­is­tra­tion will at last be re­placed at the end of the month. He still oc­cu­pies the ninth-floor cor­ner of­fice, but some­where at BT head­quar­ters chief ex­ec­u­tive-des­ig­nate Philip Jansen is plot­ting the fu­ture with­out him.

Af­ter 15 years at BT, and five and a half – the half is im­por­tant to Pat­ter­son as it means his ten­ure is par for one of the tough­est jobs in the FTSE 100 – as chief ex­ec­u­tive, he is con­fronting his new life. The beard that two years ago be­came the brood­ing face of a cor­po­rate break­down is back, this time as a sym­bol of re­lax­ation.

“If you look at his­tory, BT chief ex­ec­u­tives last five to six years,” he says. “It’s just ... some­thing al­ways hap­pens. That’s the na­ture of the job.

“There has been quite a bit of up­dat­ing my Linkedin pro­file.”

It’s a joke, but it’s true. Such are the in­dig­ni­ties of the dig­i­tal age; even the man in charge of Bri­tain’s in­ter­net in­fra­struc­ture must mar­ket him­self on so­cial me­dia.

Pat­ter­son leaves BT as a busi­ness that is un­recog­nis­able com­pared with the one he joined from cable op­er­a­tor Telewest. For all the tu­mult of the last two years, the over­ar­ch­ing theme has been the ex­plo­sion of the in­ter­net and BT’S strug­gle to adapt a busi­ness built on the work­ing prac­tices of the Post Of­fice.

“When I started, this was a tele­phone com­pany,” says Pat­ter­son. “BT had less than a mil­lion broad­band cus­tomers. There was no real in­fra­struc­ture com­pe­ti­tion.

“We came in try­ing to make the busi­ness ready for com­pe­ti­tion. Ready for chang­ing tech­nol­ogy.

“We were look­ing at the stats; in the last 15 years data con­sump­tion has in­creased some 500 times.”

New com­pe­ti­tion meant the cre­ation of Open­reach, BT’S net­work divi­sion. The move by the reg­u­la­tor Of­com al­lowed Sky into the mar­ket, set­ting Pat­ter­son on a path to­wards the launch of BT Sport in re­sponse. He over­saw its cre­ation as head of BT’S re­tail divi­sion, and or­dered fur­ther ex­pan­sion once in the top job.

This was Pat­ter­son’s BT in its pomp. It stood up as a cred­i­ble, state-of-art sports broad­cast­ing op­er­a­tion within months and took rights to the Cham­pi­ons League away from Sky. This was bold de­ci­sion-mak­ing at speed, de­signed to en­sure that ma­jor in­vest­ments in broad­band de­liv­ered re­turns. For a mar­ke­teer such as Pat­ter­son, BT Sport was the ul­ti­mate loss-leader.

The last time a BT chief ex­ec­u­tive de­vel­oped an ap­petite for risk, Ben Ver­waayen lost a for­tune lash­ing up the Global Ser­vices IT out­sourc­ing busi­ness, which re­mains a trou­bled mill­stone to­day. The wis­dom of BT’S costly rein­ven­tion as a sports broad­caster re­mains a fo­cus of de­bate, but Pat­ter­son stands by the legacy.

“When we made the de­ci­sion we were los­ing al­most a mil­lion cus­tomers a year,” he says. “Cus­tomers were con­sol­i­dat­ing ser­vices with com­peti­tors on dual play, triple play.

“We needed to pre­serve the scale of the net­work busi­ness. Is the con­sumer busi­ness more prof­itable now be­cause of BT Sport? Yes. But we were never go­ing to be a me­dia com­pany and I don’t think we should.”

The am­bi­tion of BT Sport has di­min­ished with the BT share price. Tele­coms com­pa­nies and in­vestors have cooled on the idea of me­dia own­er­ship. The im­per­a­tives of a more stretched bal­ance sheet any­way mean that BT must take a more cir­cum­spect ap­proach to bid­ding for rights.

Some believe the ar­rival of global su­per­power Ama­zon as a Premier League broad­caster, al­beit in very lim­ited form with a hand­ful of matches per sea­son, sig­nals the be­gin­ning of the end for BT Sport. Pat­ter­son doesn’t buy it, and pre­dicts BT Sport will ex­ist “in some form” five years from now. “There is a sus­tain­able way for­ward. There’s no ques­tion about that,” he in­sists. “There’s al­ways room for a third player in the UK, I think.”

Pat­ter­son can hold up the £12.5bn takeover of EE as a more tan­gi­ble, long-term legacy. The deal re­versed BT’S dot­com crash fire-sale of its mo­bile op­er­a­tion, which later be­came O2, and po­si­tioned it well for the up­com­ing shift to 5G, in which the com­bi­na­tion of fixed-line and wire­less tele­coms is ex­pected to be­come more pow­er­ful. Pat­ter­son deftly played BT’S hand, play­ing off EE’S own­ers and the Span­ish gi­ant Tele­fon­ica, which aimed to sell O2 back to BT.

“I think in the long-term, prob­a­bly more than any­thing, EE is the thing peo­ple will re­mem­ber from this pe­riod,” he says.

“We bought a good busi­ness and we’ve made it a great busi­ness. It’s grow­ing mar­ket share, it’s grow­ing rev­enues, it’s grow­ing prof­its and we’ve got a strong plat­form for 5G.”

The deal sailed through com­pe­ti­tion scru­tiny too. The reg­u­la­tory com­plex would soon take its re­venge via Of­com’s dig­i­tal com­mu­ni­ca­tions re­view, how­ever.

The once-a-decade process amounted to a long row over how much, if any, con­trol BT should have over Open­reach. The net­work divi­sion was un­der sus­tained at­tack from Sky and oth­ers for its poor record on re­pairs, which evolved into a frus­tra­tion at BT’S fail­ure to fund up­grades to faster and more re­li­able “full-fi­bre” broad­band.

The bruis­ing process even­tu­ally ended in com­pro­mise, but it killed the mo­men­tum BT had built un­der Pat­ter­son. He ad­mits he mis­judged the pol­i­tics and that his ap­proach to talks with Of­com, ini­tially un­yield­ing un­der pres­sure from in­vestors who de­manded sta­tus quo, was wrong.

Pat­ter­son and BT failed to spot that change at the top of Of­com, with new chair­man Pa­tri­cia Hodg­son and new chief ex­ec­u­tive Sharon White, meant sta­tus quo was not an op­tion for Open­reach. The re­sult was trench war­fare. With­out it, Pat­ter­son be­lieves he may have sur­vived the Ital­ian ac­count­ing scan­dal (“not ac­tu­ally a big num­ber”) and the string of other mishaps that led to his de­fen­es­tra­tion.

“We were a lit­tle flat-footed,” he says. “I’ve learnt that the thing you’ve got to watch for more than any­thing else is peo­ple changes. In se­nior po­si­tions, when a peo­ple change hap­pens, they draw dif­fer­ent con­clu­sions from the same data sets some­times.”

White, con­tent that Open­reach is im­prov­ing un­der its new, more in­de­pen­dent gov­er­nance struc­ture, says his stance was un­der­stand­able.

“There’s a view that Gavin and I didn’t get on but that’s not right,” she says. “While we didn’t agree on ev­ery­thing, it’s al­ways been con­struc­tive and was never per­sonal. Gavin un­der­stood we had a job to do, and I un­der­stood he was do­ing what any chief ex­ec­u­tive would do and was lis­ten­ing to share­hold­ers.

“Of course it took far too long to get done – prob­a­bly a year too long. I do think Gavin wanted it to hap­pen more quickly, but for a while that wasn’t trans­lat­ing through to his team. Now things are im­prov­ing for cus­tomers.”

Such pres­sures are the essence of the top job at BT. As well as share­hold­ers, it must sat­isfy reg­u­la­tors, min­is­ters, pen­sion­ers and unions over an in­vest­ment cy­cle much longer than the life ex­pectancy of the av­er­age chief ex­ec­u­tive. Friends and col­leagues say that when it came, the axe seemed a re­lief to Pat­ter­son.

He was fa­mously cap­tured on stage in a Led Zep­pelin T-shirt and sun­glasses at the Isle of Wight fes­ti­val danc­ing be­hind the disco band Chic.

For the next few months more de­com­pres­sion is in or­der.

“I might go to the odd mu­sic fes­ti­val,” he laughs.

“I’d like to do an­other CEO job, ei­ther in the US or UK, but if there isn’t one that feels like pro­gres­sion, then so be it. I’ll get the va­ri­ety I’ve en­joyed in this job but through mul­ti­ple sources of work.

“I’ve talked to peo­ple who’ve gone through a tran­si­tion like this. The best piece of ad­vice is you’ve got to give your­self a pe­riod of time where you com­pletely dis­charge. Your per­spec­tives do change. Don’t make any rash de­ci­sions. So I’ll take a few months and then hope­fully re-emerge, in shape.”

‘If you look at his­tory, BT chief ex­ec­u­tives last five to six years. Some­thing al­ways hap­pens. That’s the na­ture of the job.’

‘I’ve learnt that the thing you’ve got to watch for more than any­thing else is peo­ple changes’

Gavin Pat­ter­son bows out of the BT hot­seat af­ter five and a half years

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