The humbling of BT in two short years has been extraordinary. Back in May 2016, the chief executive, Gavin Patterson, was hailing the “landmark” acquisition of mobile operator EE; was reporting the strongest revenues for seven years; and was promising that a dividend that had just been raised by 13% could be juiced by a further 10%-plus in each of the next two years.
And now? EE still looks a good purchase but group revenues are falling again and BT has been forced into a huge restructuring programme that will see 13,000 jobs cut. The old dividend promise had already been exposed as hubristic. BT managed a 10% boost a year ago but a flat payment this year is now seen a semi-triumph or, in the sceptics’ view, an unaffordable luxury. The share price, down 8% on Thursday, stands at a five-year low.
BT to axe 13,000 jobs and move out of central London HQ
What happened? Some factors were outside BT’s control: smartphones and standard broadband markets are less exciting than they used to be. But the Italian accounting scandal was a self-inflicted disaster and BT has simply underperformed on big-ticket IT work. More importantly, there is a strong sense BT has wasted too much energy fighting government and regulators over the speed and scale of investment in fast-fibre broadband, all the while annoying everybody by spending heavily on Premier League TV rights.
In a very limited sense, the football strategy worked because Sky has now agreed a content-sharing deal, which will benefit both parties. But BT made itself an easy target to hit. The complaint that the national telephony champion, especially one constrained by a large pension deficit, should put fibre over football is 100% legitimate.
The new BT chairman, Jan du Plessis, concedes relationships with officialdom were “strained” but thinks matters are improving now that semi-separation of broadband subsidiary Openreach, as commanded by Ofcom, has happened. We’ll only know if a truce has been declared, however, when the government publishes its white paper on telecoms infrastructure in the summer. BT is spending more on fibre, but is it spending enough?
It is – just about – possible to think the worst has passed. The grand three-year restructuring will save £1.5bn a year eventually and has a two-year payback. An affordable settlement with the pension trustees has been agreed. The group still expects to generate £2.4bn of cash this year, enough in theory to cover a dividend costing £1.5bn.
But the eye-catching 7% yield on the shares suggest the market has its doubts. One can understand why. Two years ago, when Patterson was promising 10% divi increases, it was because he was confident. Now he is promising same-again dividends because he is confident about the “updated” strategy. Until the numbers arrive as advertised, there is a credibility deficit.