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
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