By Paul Sandle and Kate Holton
LONDON (Reuters) – BT <BT.L> will cut 13,000 managerial and back-office jobs and move to a smaller London base in the latest attempt by the boss of Britain’s biggest telecoms group to rebuild from an accounting scandal and multiple pressures on its business.
Chief Executive Gavin Patterson said radical action was “absolutely critical” to ensure BT could deliver the next-generation fiber and mobile networks Britain needed.
“We need to make ourselves more efficient, we need to create oxygen within the business,” he told reporters on Thursday.
Despite outlining measures to save 1.5 billion pounds ($2 billion) a year by 2020/21, the initial market reaction was negative.
A failure to hit a revenue target over the latest three months and a disappointing outlook for no profit growth for a couple of years sent BT shares down 9 percent to five-year lows.
Losing long-standing fixed-line voice revenue, many legacy telecom firms have expanded into more profitable areas.
AT&T <T.N> in the U.S. is trying to buy entertainment group Time Warner <TWX.N> while BT’s own push into sports broadcasting was designed to defend its customer base.
Since he took the top job in 2013, Patterson has spent billions of pounds on sports rights, network investment and customer service improvements, all while trying to keep regulators, pension fund trustees and investors on side.
On top of that, fraud was discovered in Italy while the group was also blindsided by a downturn in corporate and public sector markets, undermining confidence in his leadership.
Patterson, 50, tried to placate shareholders by maintaining the dividend on Thursday — and pledging to keep it flat for the next two years — and he also agreed a new pension funding plan to plug its 11.3 billion pound deficit.
Bernstein analysts called the update “disappointing.”
“BT has now firmly gone from being a reasonably predictable growth story, an outlier in the incumbent landscape across Europe, to becoming a cost restructuring story,” they said.
“Quite a remarkable shift in fortunes with an outlook that is well shy of our expectations.”
Traders said guidance for the current financial year was lower than expected, while fourth-quarter revenue fell short of targets, showing the challenges facing Patterson as he seeks to rebuild a group that employs more than 100,000 staff.
BT, which owns Britain’s biggest mobile operator EE, said it would hire about 6,000 new engineers and front line customer service staff to support its roll out of fiber and 5G networks.
Around two-thirds of jobs cuts will fall in Britain.
The company has been based at the BT Centre, near St Paul’s Cathedral and the London Stock Exchange in the City of London since it was privatized in 1984 but will now move to smaller premises in the capital.
“If we compare how we manage the business with our peers, we’re frankly too complex and overweight. This is a big deal,” said Patterson.
The convergence of different technologies means BT has faced growing competition from nimble young rivals including Sky <SKYB.L> which has expanded from being a pay TV company to offer a range of broadband services.
One top-50 investor said there was no question Patterson was under pressure, but it was not clear how replacing the chief executive would change the dynamics.
“Any growth option they pursue is potentially going to have no return on it because the regulator just wants to regulate your returns away from you,” the shareholder said.
“Pretty much the only thing you can do is to attack your cost base.”
Under Patterson’s leadership, BT has had a fractious relationship with the regulator Ofcom.
Patterson, who previously worked at consumer goods group P&G and cable TV company Telewest, said the hit from regulation would double from about 500 million pounds to 1 billion pounds a year as new controls on its faster wholesale broadband kick in.
“My biggest concern is more that they need to clear the air with the regulator,” the investor said.
BT faces caps on how much it charges rivals to use its fast broadband service as Ofcom seeks to promote the development of new networks.
THROW OF THE DICE
The job cuts, the highest number by the former monopoly since 2008, will cost 800 million pounds to implement.
Some of the proceeds from the savings will go towards increasing capital expenditure on new fiber fixed-line connections and 4G and next generation 5G mobile networks to about 3.7 billion pounds over the next two years.
The new strategy is the latest throw of the dice from Patterson who won early plaudits from investors when he moved BT into sports TV and mobile.
That goodwill evaporated when the group delivered a major profit warning in January 2017 due to problems at its multi-national Global Services division and the discovery of the Italian scandal. The shares are down 30 percent in a year.
Patterson gained some breathing space on BT’s pension, which had a deficit of 11.3 billion pounds at the end of June, on Thursday by agreeing a 13-year funding plan.
It will pay 2.1 billion pounds into the scheme by 2020 and a further 2 billion pounds will be funded by bonds.
BT said its outlook for the current financial year, to end-March, would see a 2 percent drop in underlying revenue, while adjusted core earnings would be in the range 7.3 billion-7.4 billion pounds, down from 7.5 billion pounds in the last year. ($1 = 0.7388 pounds)
(Additional reporting by Simon Jessop; Editing by Keith Weir)