BT is embarking on a process of transformation, changing its structure, strategy and attitude in a bid o be more customer focused.
As the UK’s incumbent telecommunications operator, and something of a national institution, BT arguably comes in for more than its fair share of criticism from the great British public.
And while the telecoms giant may have failed to significantly improve perceptions of its customer service record so far, it has at least embarked on an ambitious transformation to change its structure, strategy and attitude.
The company is now split into what it calls four customer-facing units: BT Retail, BT Wholesale, BT Global Services and Openreach, the access division created in 2005 in response to regulatory pressure to provide fair and equal access to BT’s copper telephone network.
BT also announced a period of restructuring in April 2007 that will see a total of 5,000 managers leave the company by the end of this financial year.
The company says that it has recruited, or intends to recruit, an equal number of Openreach staff in their place, many of whom will be engineers, as it strives to improve its customer service record, both for rival firms leasing BT Wholesale services and the thousands of businesses and consumers leasing a range of leased-line, broadband connections and add-on services.
More recently, BT created two new units, BT Design and BT Operate, designed to bring IT, networks, operations and design under a single reporting structure, effectively separating BT services from the underlying telecommunications network that enables their deployment.
The result of restructuring is a new approach to the way BT thinks and acts in its business dealings, says Scott Morrison, research director for the enterprise network services group at analyst Gartner.
“All of the divisions within the BT Group now view the world in a different way,” he says. “A couple of years ago, it was fortress BT versus the rest of the world, including wholesale customers, but BT is now much more customer-centric in its words and actions.”
To a certain extent, the changing telecommunications landscape and shareholder expectations prompted the change. Peter Nuttall, European telecoms analyst at Forrester Research, says BT like all other telecommunication specialists has been facing steadily declining revenue from the provision of voice telephony services for a number of years, and has been forced to find new sources of income to offset the decline.
“BT is a company that has had to change dramatically over the past three to four years, to the point where it has almost re-invented itself. Hence the emphasis on new revenue streams from wholesale access and global services,” he says.
The BT Group’s revenue for the third quarter of 2007 remained flat at £5.1bn, one per cent up on the same period in 2006, with pre-tax profits falling by 30 per cent from £639m to £447m.
Restructuring costs of £76m undoubtedly took their toll, but particularly hard hit was revenue from BT Wholesale, the division that sells capacity on BT networks to rival internet service providers (ISPs), which fell by £51m to £891m.
Revenue from BT Retail, which encompasses BT’s own broadband services, remained flat at £2.07bn, as did sales for Openreach, which maintains BT’s last-mile voice and data network for wholesale and retail customers.
The bright spark for BT was its Global Services division, which is steadily moving towards becoming an IT services company that is able to deliver managed network, PC and communications packages to business customers. Global Services saw its revenue for the third quarter of 2007 rise six per cent to £1.96bn from £1.84bn a year earlier, although they still fell short of BT’s earlier projections.
“BT’s latest results confirm what we have seen for the past three quarters, which is that BT Global Services is the carrier’s engine for growth,” says Morrison.
“Though it has pushed the margins in that segment up on the back of increased revenue and better quality revenue, they are still not at the 15 per cent promised in the mid-term objectives, and have not shown consistent and sustainable improvement in that area. There is still work to do there.”
Nuttall says the biggest concern lies with BT Retail, mainly because the division is so heavily reliant on broadband revenue. “Though there is still potential for growth in the broadband market, with a limited base of dial-up users still to be converted. It is still a very aggressive market, with lots of ISPs offering free products and services with broadband subscriptions,” he says.
A large part of BT’s strategy for future success is reliant on the construction of the carrier’s next-generation telecommunications network, dubbed 21CN, which the company says will deliver improvements and operational efficiencies, and a platform for new products and services for customers.
The initial rollout, which will eventually replace 16 national networks with one single IP infrastructure, started in 2006. BT expects to have 50 per cent of its customer base transferred onto the new network by the end of this year.
When finally complete, which current schedules suggest will be around 2011, BT expects 21CN to deliver operational cost savings of around £1bn a year.
Mike Cansfield, telecoms strategy practice leader at analyst Ovum, says 21CN provides all-round benefits.
“It actually makes connections to other operators more simple because it takes out some of the archaic telecoms interconnect points that have existed for 20 years or more,” he says.
“Things will become far more automated, and it will be easier for BT and other operators to introduce new services for their customers.”
BT chief information officer Al-Noor Ramji highlights the provider’s recent announcement that it will soon be delivering 100Mbit/s Ethernet-based broadband connectivity to a housing estate in Kent as a prime example of the sort of service that 21CN can support.
“We have the ability to sustain that type of innovation for a whole range of products and put lots of value-added services on top,” he says.
From a business customer perspective, introducing or at least testing Ethernet in this way is heartening, says Gartner’s Morrison.
“Delivering Ethernet over multiple circuits of copper pairs enables BT to offer differentiated quality of service over broadband, something for which there is a lot of demand and exactly the sort of thing that will allow BT to increase its revenues,” says Morrison.
The delivery of new software and services is central to the 21CN strategy, with BT keen to encourage software developers to build IP-based communications capabilities into new applications that can take maximum advantage of 21CN.
A key element is Web21C portal, a resource for software developers looking to build applications based on the Web 2.0 platform, and which offers free-to-download programming tools and software development kits.
Ramji is particularly keen to evolve
this resource because it can help BT offer software as a service (SaaS) options to business customers.
“We already have SaaS products live in the small business market, such as call centre products and Oracle on-demand,” he says. “We will do a lot more with SaaS going forward, making it a huge global play so that anyone, anywhere can use it.”
While analysts do not doubt BT’s ambitions for SaaS, some experts are not quite as certain about the carrier’s ability to offer on-demand provision either now or in the future.
“BT is in the very early stages of the Web21C platform rollout. It has been on the cards for a while, but we have seen relatively limited fruits of that labour so far,” says Morrison.
“There are clearly areas where the platform could be developed for enterprise application development, but BT needs
to extend beyond communications applications to a broader platform it is certainly not a SaaS platform as yet.”
According to Morrison, another segment that BT must properly address to open up new sources of revenue is mobility, which he says is equally important for consumer and business customers. “BT is not a mobile virtual network operator in any country, even though the UK is the obvious place for it to become one because of its presence on the high street and its sales channel,” he says.
“BT will need both of these to compete with firms like Vodafone on a price basis the issue is that it needs to win customers for basic mobile services in order to up-sell other services with higher average revenue per user.” The carrier made a bright start with its pioneering fixed mobile convergence system, Fusion, which uses dual mode GSM/Wi-Fi mobile handsets to make calls over wireless cellular and Wi-Fi networks, as well as fixed-line broadband links.
So far, though, take-up has been muted, and Nuttall says BT has some more thinking to do around mobility in the future.
“The problem was that BT failed to position itself against the increasing size of bundled mobile minutes being given away by mobile network operators for free, but it also failed to educate users about Fusion’s benefits,” he says.
BT chief information officer Al-Noor Ramji
What is the biggest change you have seen in the telecommunications industry recently?
The whole telecommunications industry clearly has a vision that
the customer is now king, and BT shares that. We need to move from being a product and network-based company to being a service-based company.
What is the significance of BT’s 21st Century Network (21CN)?
21CN is a global, real-time open platform, based on internet protocol and we want to put everything into the software layer.
The key is that we are not talking about an overlay network, but changing things at the core of BT’s infrastructure.
No other telco is replacing all of the public switched telephone network, but some are putting in overlays and claiming this
constitutes a brand new network. BT is doing end-to-end quality of service and monitoring from a customer standpoint – there was a time when, if the line went down, we did not know about it until the customer told us. Now BT knows at the same time as the customer.
What is BT doing to comply with Ofcom proposals on the deregulation of wholesale broadband provision?
Regulation is not my area of expertise, but we do have a good relationship with Ofcom, as evidenced by our agreement to form a separate access division in Openreach. The way local loop unbundling was regarded was that if enough customers were lost through making access equal, Ofcom would be lighter on regulation, so in a generic sense BT is doing fine.
BT pledged last year to reduce its staff by 5,000 by mid-2008, how is that going?
Those figures were misreported at the time – we essentially have a rolling replacement of staff with people leaving as they retire. We are also bringing in other people, around 5,000 for Openreach, and moving people away from middle management into more operational roles. We have replaced about 2,500 people so far, but the process is ongoing.
What was the thinking behind the BT Design and BT Operate restructuring?
It was really focused on making customer experience the priority. We also wanted to make our market-facing units line up against specific customer segments, and have a separate unit focus on delivering new software and services to customers. It is an ongoing change, sort of like a big upscaling project.Ҭ
What the experts say
BT is already number one for customer service, and we think our differentiation comes from the quality of our customer service. There will be cases where customers get the BT shunt, but we have plans to combat that and continuously improve our customer service.
- Al-Noor Ramji, chief information officer, BT
BT’s core strengths are its incumbent status and a national network that is second to none, giving BT the lead in the UK residential, business and wholesale markets with more then18 million customers, including 1.5 million small businesses and 26,000 major business and government customers. BT also serves 80 per cent of the FTSE 100 and 19 of the top 20 UK-headquartered financial institutions.
- Natasha Rybak, senior analyst, telecom services Europe, CurrentAnalysis
What I want to see from BT is to move other parts of the business towards the model we already see in Global Services, in other words more focus on value-added services and increasing top-line opportunities. It is about simplifying the core of the network to reduce cost, then looking at the edge of the network to see what BT can do for customers there, and entice those customers into spending more with BT.
- Scott Morrison, research director for the enterprise network services group, Gartner
I would expect to see more activity around BT as a wholesale switcher of calls for mobile operators, much like the deals with T-Mobile and 02, as they push more and more traffic onto BT’s network because fixed networks are cheaper and more reliable. The mobile operators will have to keep the fixed portion of their networks as efficient as possible and this will play into BT’s hands as long as it keeps the price right.
- Mike Cansfield, telecoms strategy practice leader, Ovum.
As the UK’s incumbent telecommunications operator, and something of a national institution, BT arguably comes in for more than its fair share of criticism from the great British public.
And while the telecoms giant may have failed to significantly improve perceptions of its customer service record so far, it has at least embarked on an ambitious transformation to change its structure, strategy and attitude.
The company is now split into what it calls four customer-facing units: BT Retail, BT Wholesale, BT Global Services and Openreach, the access division created in 2005 in response to regulatory pressure to provide fair and equal access to BT’s copper telephone network.
BT also announced a period of restructuring in April 2007 that will see a total of 5,000 managers leave the company by the end of this financial year.
The company says that it has recruited, or intends to recruit, an equal number of Openreach staff in their place, many of whom will be engineers, as it strives to improve its customer service record, both for rival firms leasing BT Wholesale services and the thousands of businesses and consumers leasing a range of leased-line, broadband connections and add-on services.
More recently, BT created two new units, BT Design and BT Operate, designed to bring IT, networks, operations and design under a single reporting structure, effectively separating BT services from the underlying telecommunications network that enables their deployment.
The result of restructuring is a new approach to the way BT thinks and acts in its business dealings, says Scott Morrison, research director for the enterprise network services group at analyst Gartner.
“All of the divisions within the BT Group now view the world in a different way,” he says. “A couple of years ago, it was fortress BT versus the rest of the world, including wholesale customers, but BT is now much more customer-centric in its words and actions.”
To a certain extent, the changing telecommunications landscape and shareholder expectations prompted the change. Peter Nuttall, European telecoms analyst at Forrester Research, says BT like all other telecommunication specialists has been facing steadily declining revenue from the provision of voice telephony services for a number of years, and has been forced to find new sources of income to offset the decline.
“BT is a company that has had to change dramatically over the past three to four years, to the point where it has almost re-invented itself. Hence the emphasis on new revenue streams from wholesale access and global services,” he says.
The BT Group’s revenue for the third quarter of 2007 remained flat at £5.1bn, one per cent up on the same period in 2006, with pre-tax profits falling by 30 per cent from £639m to £447m.
Restructuring costs of £76m undoubtedly took their toll, but particularly hard hit was revenue from BT Wholesale, the division that sells capacity on BT networks to rival internet service providers (ISPs), which fell by £51m to £891m.
Revenue from BT Retail, which encompasses BT’s own broadband services, remained flat at £2.07bn, as did sales for Openreach, which maintains BT’s last-mile voice and data network for wholesale and retail customers.
The bright spark for BT was its Global Services division, which is steadily moving towards becoming an IT services company that is able to deliver managed network, PC and communications packages to business customers. Global Services saw its revenue for the third quarter of 2007 rise six per cent to £1.96bn from £1.84bn a year earlier, although they still fell short of BT’s earlier projections.
“BT’s latest results confirm what we have seen for the past three quarters, which is that BT Global Services is the carrier’s engine for growth,” says Morrison.
“Though it has pushed the margins in that segment up on the back of increased revenue and better quality revenue, they are still not at the 15 per cent promised in the mid-term objectives, and have not shown consistent and sustainable improvement in that area. There is still work to do there.”
Nuttall says the biggest concern lies with BT Retail, mainly because the division is so heavily reliant on broadband revenue. “Though there is still potential for growth in the broadband market, with a limited base of dial-up users still to be converted. It is still a very aggressive market, with lots of ISPs offering free products and services with broadband subscriptions,” he says.
A large part of BT’s strategy for future success is reliant on the construction of the carrier’s next-generation telecommunications network, dubbed 21CN, which the company says will deliver improvements and operational efficiencies, and a platform for new products and services for customers.
The initial rollout, which will eventually replace 16 national networks with one single IP infrastructure, started in 2006. BT expects to have 50 per cent of its customer base transferred onto the new network by the end of this year.
When finally complete, which current schedules suggest will be around 2011, BT expects 21CN to deliver operational cost savings of around £1bn a year.
Mike Cansfield, telecoms strategy practice leader at analyst Ovum, says 21CN provides all-round benefits.
“It actually makes connections to other operators more simple because it takes out some of the archaic telecoms interconnect points that have existed for 20 years or more,” he says.
“Things will become far more automated, and it will be easier for BT and other operators to introduce new services for their customers.”
BT chief information officer Al-Noor Ramji highlights the provider’s recent announcement that it will soon be delivering 100Mbit/s Ethernet-based broadband connectivity to a housing estate in Kent as a prime example of the sort of service that 21CN can support.
“We have the ability to sustain that type of innovation for a whole range of products and put lots of value-added services on top,” he says.
From a business customer perspective, introducing or at least testing Ethernet in this way is heartening, says Gartner’s Morrison.
“Delivering Ethernet over multiple circuits of copper pairs enables BT to offer differentiated quality of service over broadband, something for which there is a lot of demand and exactly the sort of thing that will allow BT to increase its revenues,” says Morrison.
The delivery of new software and services is central to the 21CN strategy, with BT keen to encourage software developers to build IP-based communications capabilities into new applications that can take maximum advantage of 21CN.
A key element is Web21C portal, a resource for software developers looking to build applications based on the Web 2.0 platform, and which offers free-to-download programming tools and software development kits.
Ramji is particularly keen to evolve
this resource because it can help BT offer software as a service (SaaS) options to business customers.
“We already have SaaS products live in the small business market, such as call centre products and Oracle on-demand,” he says. “We will do a lot more with SaaS going forward, making it a huge global play so that anyone, anywhere can use it.”
While analysts do not doubt BT’s ambitions for SaaS, some experts are not quite as certain about the carrier’s ability to offer on-demand provision either now or in the future.
“BT is in the very early stages of the Web21C platform rollout. It has been on the cards for a while, but we have seen relatively limited fruits of that labour so far,” says Morrison.
“There are clearly areas where the platform could be developed for enterprise application development, but BT needs
to extend beyond communications applications to a broader platform it is certainly not a SaaS platform as yet.”
According to Morrison, another segment that BT must properly address to open up new sources of revenue is mobility, which he says is equally important for consumer and business customers. “BT is not a mobile virtual network operator in any country, even though the UK is the obvious place for it to become one because of its presence on the high street and its sales channel,” he says.
“BT will need both of these to compete with firms like Vodafone on a price basis the issue is that it needs to win customers for basic mobile services in order to up-sell other services with higher average revenue per user.” The carrier made a bright start with its pioneering fixed mobile convergence system, Fusion, which uses dual mode GSM/Wi-Fi mobile handsets to make calls over wireless cellular and Wi-Fi networks, as well as fixed-line broadband links.
So far, though, take-up has been muted, and Nuttall says BT has some more thinking to do around mobility in the future.
“The problem was that BT failed to position itself against the increasing size of bundled mobile minutes being given away by mobile network operators for free, but it also failed to educate users about Fusion’s benefits,” he says.
BT chief information officer Al-Noor Ramji
What is the biggest change you have seen in the telecommunications industry recently?
The whole telecommunications industry clearly has a vision that
the customer is now king, and BT shares that. We need to move from being a product and network-based company to being a service-based company.
What is the significance of BT’s 21st Century Network (21CN)?
21CN is a global, real-time open platform, based on internet protocol and we want to put everything into the software layer.
The key is that we are not talking about an overlay network, but changing things at the core of BT’s infrastructure.
No other telco is replacing all of the public switched telephone network, but some are putting in overlays and claiming this
constitutes a brand new network. BT is doing end-to-end quality of service and monitoring from a customer standpoint – there was a time when, if the line went down, we did not know about it until the customer told us. Now BT knows at the same time as the customer.
What is BT doing to comply with Ofcom proposals on the deregulation of wholesale broadband provision?
Regulation is not my area of expertise, but we do have a good relationship with Ofcom, as evidenced by our agreement to form a separate access division in Openreach. The way local loop unbundling was regarded was that if enough customers were lost through making access equal, Ofcom would be lighter on regulation, so in a generic sense BT is doing fine.
BT pledged last year to reduce its staff by 5,000 by mid-2008, how is that going?
Those figures were misreported at the time – we essentially have a rolling replacement of staff with people leaving as they retire. We are also bringing in other people, around 5,000 for Openreach, and moving people away from middle management into more operational roles. We have replaced about 2,500 people so far, but the process is ongoing.
What was the thinking behind the BT Design and BT Operate restructuring?
It was really focused on making customer experience the priority. We also wanted to make our market-facing units line up against specific customer segments, and have a separate unit focus on delivering new software and services to customers. It is an ongoing change, sort of like a big upscaling project.Ҭ
What the experts say
BT is already number one for customer service, and we think our differentiation comes from the quality of our customer service. There will be cases where customers get the BT shunt, but we have plans to combat that and continuously improve our customer service.
- Al-Noor Ramji, chief information officer, BT
BT’s core strengths are its incumbent status and a national network that is second to none, giving BT the lead in the UK residential, business and wholesale markets with more then18 million customers, including 1.5 million small businesses and 26,000 major business and government customers. BT also serves 80 per cent of the FTSE 100 and 19 of the top 20 UK-headquartered financial institutions.
- Natasha Rybak, senior analyst, telecom services Europe, CurrentAnalysis
What I want to see from BT is to move other parts of the business towards the model we already see in Global Services, in other words more focus on value-added services and increasing top-line opportunities. It is about simplifying the core of the network to reduce cost, then looking at the edge of the network to see what BT can do for customers there, and entice those customers into spending more with BT.
- Scott Morrison, research director for the enterprise network services group, Gartner
I would expect to see more activity around BT as a wholesale switcher of calls for mobile operators, much like the deals with T-Mobile and 02, as they push more and more traffic onto BT’s network because fixed networks are cheaper and more reliable. The mobile operators will have to keep the fixed portion of their networks as efficient as possible and this will play into BT’s hands as long as it keeps the price right.
- Mike Cansfield, telecoms strategy practice leader, Ovum.
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