Global Insight Perspective | |
Significance | BT has taken a further step towards re-inventing itself as an IT services company. |
Implications | Having seen its flagship telecoms products—BT Fusion, BT Movio and BT Vision—flop, the restructuring will give BT a further opportunity to boost its buoyant IT services business. |
Outlook | The new units—BT Design and BT Operate—could help the operator create new IT products and reduce its reliance on acquisitions to boost its IT services business. |
The United Kingdom's leading telecoms group, BT, has announced a major restructuring of its operations and management, pushing it further away from telecoms and reinforcing the company's transformation to a truly-networked IT services business. In a statement yesterday, BT said it was creating two new divisions—BT Design and BT Operate—and is moving about 20,000 existing employees into the new divisions. BT Design will be responsible for the design and development of new services while BT Operate will be responsible for their deployment and operation. Andy Green, current chief executive of BT's successful Global Services division, will step up to head the two new units as chief executive of group strategy and operations. The current head of BT International, Francois Barrault, will move up to take over the helm of Global Services.
Commenting on the announcement, the BT Group chief executive, Ben Verwaayen, said the restructuring is the second phase of BT's transformation. "The first phase saw BT shift its focus from narrowband to broadband," he said. "[The next stage] will see BT advance from a 20th-century hardware-based company to a 21st-century software-based services company," he added. Verwaayen also said he hoped the restructuring would enable BT to harness the potential of its 21st century network to provide software-driven services to customers in real time and around the globe. BT Design and BT Operate will pull most of their staff from BT's internal IT unit, plus its BT Wholesale and Global Services division. The company also noted that its existing divisions, such as BT Retail, will retain their identity but will receive strategic and operational support from the new centralised research and development divisions. Openreach is unaffected by the restructuring.
Outlook and Implications
No Surprises: The restructuring plan is hardly surprising given that BT has ramped up activities aimed at cementing its rebranding as an IT services company. Over the past 18 months, the company has made several multi-million dollar acquisitions across the world and, with a few exceptions, such as its acquisition of the U.K. broadband provider, Plusnet, all have been to snap up an IT services business. The list includes Comsat International in Latin America; INet, Albacom and Atlanta in Italy; i2i Enterprises in India; INS Inc in the United States; Fiat's operations in Brazil, Italy and Poland—Telexis; Dabs.com in the United Kingdom and Cable & Wireless's Spanish assets. The new units—BT Design and BT Operate—could help the operator create new IT products and reduce its reliance on acquisitions to boost its IT-services business (see World: 23 April 2007: BT Acquires Comsat International, India: 6 February 2007: BT Buys Telecoms and IT Provider, Verizon Eyes Long-Distance Market, World: 5 February 2007: BT Buys into U.S. IT Market, Brazil: 26 November 2006: BT Makes Acquisition in Brazil, Italy: 27 September 2006: BT Rebrands Italian Units, Poland: 1 August 2006: BT Acquires Telexis for US$1.5 bil., United Kingdom: 1 May 2006: BT Buys dabs.comand Spain: 8 April 2005: BT Group Acquires Cable & Wireless's Spanish Assets).
Edging Away from Telecoms: BT's latest restructuring further reinforces the group's onward march away from its telecoms roots while recreating itself as a networked-services IT company. Since 2001, the group has been pushing further and further away from telecoms as the limitations of having neither a tangible mobile operation at home, nor a visible residential telecom operation abroad, began to dent its brand and affect its fortunes. Its Global Services division—the unit championing its move into IT services and controlling its overseas operations—has lived up to expectations, accounting for a significant proportion of the group's profits in the past three years (see World: 27 July 2006: BT Q1 Profit Up 24%, Thanks to Strong International Businesses,18 May 2006: BT Posts 7% Rise in Full-Year Revenue, Thanks to New-Wave Businesses and 30 June 2005: BT Global Services Unit Stands Tall).
BT's 'Floppy' Trio: Perhaps the best indicator of BT's non-success in telecoms is the failure of its three flagship telecoms products—BT Fusion, BT Movio and BT Vision. Despite being the first truly fixed-mobile convergence product launched in the world, BT Fusion managed only 40,000 customers as of year-end 2006, over 15 months after launch. Although BT has poured resources into advertising and has even launched a Wi-Fi version of the product, Global Insight still believes the present status of competition in the U.K. mobile market and the availability of flat-rate bundles means BT Fusion will struggle to make an impact in the market. Similarly, BT Movio, the company's flagship mobile TV standard using digital audio broadcasting (DAB), has failed to make an impact in the market. Virgin Mobile, the sole licensee of the product, disclosed in January 2007 that customer numbers remained painfully low. Apart from the unavailability of choice of handsets, the service's reliance on DAB when indications are high that the European mobile industry will adopt the rival digital video broadcasting handheld (DVB-H), means other U.K. mobile operators are reluctant to embrace the service. Global Insight sees BT Movio dying a natural death. Lastly, BT Vision, the company's much-awaited IP TV service was, unfortunately, designed into irrelevance. Offering freely-available terrestrial TV channels with the option of video-on-demand is hardly pragmatic in Europe's largest pay-TV market. The two leading pay-TV operators—BSkyB and Virgin Media—together control over 12 million customers, leaving little room for a non-innovative BT Vision. BT revealed earlier this month that it only signed up 2,400 non-BT-employee customers in four months (see United Kingdom: 2 April 2007: BT Signs 5,000 TV Subscribers, 17 January 2007: Virgin Mobile's TV Service Fails to Win Customersand 8 January 2007: BT Launches Wi-Fi-Enabled BT Fusion).