BT: pulling the plug on Patterson

“Few FTSE 100 chief executives have seen their star rise and fall quite as rapidly as Gavin Patterson”, who has been ousted abruptly by the BT board after five years in the job, said Jim Armitage in the London Evening Standard. “The handsome, open-neck-shirted marketeer” could once “do no wrong”. Shares rocketed when he launched “the dreary former state telecoms monopoly” into Premier League football and mobile phones, via the purchase of EE in 2016. But then his “troubles came in battalions”. The Openreach division’s “snail’space roll-out of fast broadband”, combined with poor customer service, left BT rapidly becoming a target of public loathing. “The narrative cast by many was that Patterson spent a fortune on football when he should have been investing in better broadband.”

Attacks on the TV strategy aren’t entirely fair. “Without sport, BT would never have been a contender in home entertainment.” But even so, paying almost £1bn for football rights in 2015 was a dicey move, said Lex in the FT. “The shares have more than halved since”, and in a massive restructuring attempt last month, Patterson announced 13,000 job cuts. Meanwhile, the pensions deficit stands at £14bn. Investors should steel themselves for a dividend cut.

Patterson’s mistake was “trying to reconcile the impossible trinity” of dealing with the pensions deficit, maintaining the dividend, and responding to political and regulatory pressures, said Jeremy Warner in The Sunday Telegraph. “He skimped on all three and thereby satisfied no one.” His as-yet-unknown successor needs to “grasp the nettle” by separating BT into its wholesale and retail components, and channelling the dividend cash into longterm investment. That won’t please income investors. “But it is as plain as a pikestaff that the status quo is unsustainable.”