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BT Tries to Prove its Indispensable – Shows GBP18bn UK Economic Boost

Wednesday, November 4th, 2015 (8:09 am) - Score 948
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BT has launched a new salvo in its efforts to defend against calls for them to be split from control of their national telecoms network by highlighting the results of an “independent” study, which found that the operator is responsible for generating £1 in every £80 produced in the United Kingdom.

The national telecoms regulator, Ofcom, is currently conducting a Strategic Review that among other things must examine the question of whether or not to separate Openreach from BT and in so doing turn it into a completely separate organisation (here).

The operators rivals, such as Vodafone, TalkTalk and Sky Broadband, want to see this happen more than most because they claim that BT has abused its dominant position in the market, under-invests in the national infrastructure and doesn’t provide a good quality of service (here). Mind you it’s unclear whether all of this could be improved by splitting BT and there are many complications to consider (debt, pensions, jobs, legal challenges etc.)

In the meantime BT has been trying to convince both Ofcom and the public at large that they’re a safe bet for the future, not least by touting their future plans to continue improving national broadband speeds / coverage (here) and calling for related regulatory changes in their favour (here).

Today that fight back continues with the publication of a new report from Regeneris Consulting, which was naturally conducted on behalf of BT and thus seems designed to help fuel a bit of positive spin; albeit spin with a powerful economic message or warning, depending upon your perspective.

Report Highlights

* BT is responsible for generating £1 in every £80 produced in the UK. The communications company spent £6.5 billion with UK suppliers during the 2014/15 financial year and gave an £18 billion boost to the country’s economy.

* It’s estimated that the equivalent of 217,000 full-time UK jobs are supported through BT’s direct employment, its spending with contractors and suppliers and the spending of employees (this is broken down a bit more below).

* BT employs 72,200 people in the UK and 10,900 contractors with a total employment income of £2.9 billion.

* BT provides work for a further 134,100 through BT’s spending with businesses that supply its equipment and services, and the spending of employees.

* BT people committed more than 50,500 volunteering days to worthy causes during 2014/15 – worth more than £15 million.

* BT has enabled more than three-quarters (77%) of its employees to work flexibly.

* In addition to its multi-billion pound roll-out of “fibre broadband” (FTTC/P), BT claims to consistently be one of the country’s leading investors in innovation with spending on research and development in the 2014/15 financial year reaching £502 million.

Put simply, BT is really big, which we already knew.

Brendan Dick, Managing Director of BT Regions, said:

There are few organisations that have a larger impact on the day-to-day life and future prospects of the UK than BT. We are one of the country’s largest private sector employers and investors – our investment in fibre broadband alone amounts to more than £3 billion – and the services that we provide are a vital part of every community.

The facts and figures shown in this report highlight the full extent of BT’s contribution to the economy as we go about the daily business of keeping people connected and introducing new technologies, which are creating fresh opportunities and transforming lives.

Aside from the company’s activities, the report also draws attention to the positive ways BT people are contributing to the communities where they live and work, whether they are a volunteer for a worthy cause or a local shopper.”

Mind you none of this will do much to dampen the frustrations and complaints that have been raised against the operator, be they from rivals seeking to have a greater influence upon the market or rural communities that have grown tired of waiting for better broadband connectivity to arrive and which don’t want to be fobbed off with Satellite.

Never the less BT’s economic and employment impact upon the UK will certainly be something that Ofcom takes seriously and today’s report merely underlines that fact. Mind you it could also be argued that an independent Openreach division might well need to employ more people in order to improve service quality, which in turn may result in higher prices for consumers.

Certainly it’s not as if separating Openreach would suddenly result in a huge loss of all that economic impact, but as ever the outcome will depend entirely upon Ofcom’s chosen approach.

Region or Country Total Gross Value Added £m BT Employees and Contractors Working in Region or Country
East of England 2,300 10,400
East Midlands 624 4,070
London 4,500 13,300
North East 492 3,750
North West 1,640 9,450
Northern Ireland 432 3,110
Scotland 1,010 6,930
South East 3,190 10,300
South West 879 5,800
Wales 575 2,950
West Midlands 1,180 6,380
Yorkshire and the Humber 1,130 6,580
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Mark Jackson

By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he is also the founder of ISPreview since 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.

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28 Responses
  1. Steve Jones

    To put the 73,200 UK employees (and 10,900 contractors) in perspective, when BT was privatised (with 50.2% of the shares being sold) it employed over 250,000 people, or about 1% of the UK workforce at the time. I suspect that the considerable majority of those 250,000 are now either pensioners or deceased as that was 31 years ago.

    At time of privatisation the entire business would have been dominated by phone services (with the vast majority of local exchanges being Strowger) with a smattering of telex, some (very limited) data services. Call revenues would have been the vast majority of turnover whilst now its a declining fraction of the total.
    It wasn’t until five years later that Tim Berner-Lee invented HTTP and set the course for the worldwide-web. BT did have Prestel using 1200/75 dial-up modems (launched by Post Office Telecommunications in 1979), but it maxed out at 90,000 subscribers.

    There was no Global Services of course (or anything remotely like it) and, of course, no broadband business. Cellnet wasn’t part of the numbers either – it was founded in 1985.

    Add mobile, the competitors on BT’s infrastructure as well as VM and the result is an industry unrecognisable to that in 1984.

    Just about the only thing that remains of the old BT infrastructure are the ducts, poles, exchange buildings and most of the local copper loop network. Virtually everything else will have been changed several times.

    • GNewton

      @SteveJones: “Virtually everything else will have been changed several times.”

      That being the case, is it really a requirement to place a disproportionate portion of the pension burden onto an independent Openreach? Many of the former employee’s job descriptions simply don’t exist anymore, the nature of today’s BT Group is quite different compared to that of 1984.

      It looks more to me that BT is getting afraid now about the prospect of a coming split up.

    • Steve Jones

      The fairest way to do the pension burden is surely by past employment patterns. I can see (for example) Global Services ought to bear the historic cost of it’s employment history, but it’s unclear why that part of the business should be required to fund the many tens of thousands of employees who worked on the local network.

      Of course the lawyers will have a field day over all this, but it’s exactly the sort of issue that will have to be dealt with if there was to be full separation.

    • DTMark

      “Just about the only thing that remains of the old BT infrastructure are the ducts, poles, exchange buildings and most of the local copper loop network”

      Isn’t that the problem 😉

      “Everything else” is just dancing around the edges so far as a fit-for-purpose modern telecommunications network that can serve us now, and in the future, are concerned, hence the adjudication and possible split.

    • themanstan

      But the core network is modern… it´s the last mile network which is antiquated… and that is the fault of UKGov and OFCOM with their Enterprise Act protection of cable companies…

    • GNewton

      @themanstan: “fault of UKGov and OFCOM”

      Only true to a degree. This still leaves us with an utterly incompetent BT which needs sorting out, and which is BT’s responsibility. To see how much things have gone downhill, see BT’s own business forum, or TrustPilot reviews (very poor ratings). There is nothing to prevent BT to get its act together, to improve its customer service, to start doing telecom services with fibre, to act like a business and not like a poor charity begging for taxpayer’s money etc.

    • TheManStan

      I disagree, if you have a government and regulator who enshrine in law that a business may not operate in a particular service sector… then the government is wholly responsible for the absence of that form of service.

      If said government/regulator then takes 4 years to agree for the business to operate in that sector, then the government is wholly responsible for that delay.

      If said government then says we wish a network covering X amount of the country in 5 years, there is no chance that any business will be able to meet such a deadline with FTTP. Even taking the best price arrangement of a £10-15BN cost for 95% FTTP, you shrink the deployment time, that results in these costs rocketing up again as quick delivery is hugely expensive. As a business, the intermediate route that results in acceptable debt levels was always the case.

      How is BT incompetent? For Openreaches customer service (and ISPs) there will be to a fair degree, for the network roll-out look to government for a lack of vision and a failure to understand that market cannot work for a portion of the network. Regulate for provision of the best pricing for the consumer is not always the best thing going forwards…

      And the current requirement for maintaining the copper loop is entirely at the feet of government/regulator… they could easily regulate for incremental removal of support fot copper… but that would have other ISPs up in arms about their investments at the exchanges and claiming anti-competitive practises.

      And having the building companies dictating what form of service is provided copper or fibre for new builds, is again entirely the responsibility of government. Clearly market forces do not work for this aspect of network provision because there are no market forces, just the building companies bottom line and path of least resistance.

      It’s very easy to blame all of this on BT, there is blame to be laid at their feet, but reality is the majority belongs to the governments (LAB, CON/LIB and CON) which created the current environment as they have not had a coherent plan for essential communications infrastructure… unlike S. Korea, NZ and other comms advanced countries where government has been at the centre of directing modernisation of infrastructure and have not restricted their incumbents with legislation like the Enterprise Act from rolling out particular technologies.

    • Steve Jones

      @GNewton

      I don’t know what planet you are from, but in the one inhabited by real people, investments have to be commercially viable. I’m sure that OR would like nothing better than to be able to replace all that copper with fibre but they can only do that if there is a commercial case. If there isn’t, it’s a route to insolvency. Of course it wouldn’t actually get there as there’s not a cat’s chance in hell that any investor of bank would make the money available.

      OR react to the regulatory and commercial environment they are in. Ofcom’s strategy from day 1 was to promote ADSL and LLU over copper, and to force the wholesale price as low as possible. They went further by adding a “margin squeeze” test (competition law only provides for predatory pricing tests). The “margin squeeze” test is essentially a guaranteed profit margin for “efficient” operators which provides a floor price for BTR and BTW pricing. The result of this is that the UK has a huge share of ADSL2+/LLY lines representing a lot of investment costs by LLU operators. That’s a simply massive barrier to removing copper. Indeed, there is no mechanism by which existing copper can be removed given Ofcom mandate that MPF and WLR products must be made available.

      For the foreseeable future any fibre network would have to coexist with a copper network. Even if Ofcom wanted to change the regulatory regime, they couldn’t do it quickly due to that LLU investment.

      Then there’s the simple issue of where would the enhanced revenue stream come from? OR revenues are gently declining due to regulatory action. Only GEA/FTTC & GEA/FTTP are increasing (but that doesn’t even compensate for regulatory reductions in other areas). At some point in the future Ofcom will almost certainly regulate GEA product prices too. As for a pure fibre solution, then I see little prospect of a price premium to actually pay for it. Certainly Ofcom’s regulatory regime doesn’t allow it.

  2. Patrick Cosgrove

    One other thing that remains of the old BT is appalling customer service,

  3. Dean

    What rubbish. It isn’t BT itself that is responsible, it is the network itself (which government gave them the monopoly of) that is responsible. If anyone else had the same monopoly of core infrastructure such as communications, they would be responsible instead.

    • TheFacts

      The government did not give BT a monopoly, it sold the network to the shareholders. And opened up telecomms to all companies.

  4. gerarda

    And how much have BTs lies, predatory behaviour etc cost the economy?

    • fastman

      Gerada

      really 1!!!!

    • Steve Jones

      What lies?

    • gerarda

      what lies?

      At a public meeting held locally nearly 3 years ago our ex-District Councillor told a BT director, to spontaneous applause from all the audience, that BT had lied for 10 years and what she was saying was just another lie. Which it was – she promised us all superfast connections by Spring 2014. We are still waiting.

    • GNewton

      @SteveJones: “What lies?”

      Just a few years ago Openreach said it would invest £1.5 billion in rolling out superfast broadband (FTTC and FTTP) across 40% of the UK by 2012. Of this, 1 million premises were expected to be covered by FTTP and they even increased this to 2.5 million in October 2009. We all know what became of its FTTP plans. Customers haven’t even been able to order the FoD service for quite while now.

  5. Mark

    “In the meantime BT has been trying to convince both Ofcom and the public at large that they’re a safe bet for the future…”

    So many promises, so little time left to convince people, shame! I doubt Ofcom will separate them but whatever happens i think this time Ofcom are going to have to do something a bit out of the box.
    In recent months they have been trying to convince us all. It has become not dis-similar to how a conman tries to gain trust or a dodgy car dealer points at something shiny but it is ultimately knackered under the shiny surface.
    Utter desperation and worry from them and personally i find it funny to watch.

  6. [Comment Removed: Please don’t use comments to advertise your website as this is against our rules].

  7. From the Break Up BT website:

    There’s no downside to breaking up BT – BT claims that Openreach is operated as a separate company – if they are telling the truth, then at the very worst they’ll be no change in service. If they’re not telling the truth – they’ve been breaking the law and hurting consumers more than we already know.

    • Steve Jones

      If that site is saying that BT claim Openreach is runs as a separate company then they are either lying or, to be generous, simply not familiar with the undertakings they agreed with Ofcom. So they are either engaging in deliberately misleading polemics or are simply incompetent. For the record, the undertakings that BT made with Ofcom can be found here on the Ofcom site.

      http://stakeholders.ofcom.org.uk/binaries/telecoms/policy/bt/consolidated.pdf

      The essentials of Openreach is that it provides equivalence of input. That is it provides the same products on the same terms and prices to all telecoms companies including other BT divisions. The functional interfaces for things such as ordering, fault reporting, configuration and so on are all identical. In addition, all new products and investments are made giving appropriate weight to all the customer companies. Any requests for products are evaluated and dealt with on a commercial basis by a separate OR investment board (with no representation from other business divisions). Other BT divisions are also not allowed any privileged access to OR product information. All operation support systems have to be separate and, of course, it has a dedicated workforce.

      However, there are things which OR and the rest of BT do share which is considered to be of benefit to the telecoms industry as a whole as they reduce costs of OR (and hence wholesale prices).

      1) OR and the rest of BT use common HR resources, pay systems, pension scheme and any number of other administration systems.

      2) Whilst OR operational support systems are independent, then they

      3) OR share BT corporate deals on from all sorts of suppliers. Most importantly that will include licences for software such as databases, office software, systems products, databases and a vast number of other such things.

      4) While OR systems operational support systems are separate, the data centres and other network infrastructure are not.

      5) OR share technical resources in the form of things like IT, R&D facilities and so on. Even though actual physical systems will be separate there will be common systems and IT architectural designs in many cases. Ofcom favour this where it reduces OR wholesale costs.

      There are many other aspects too, but one general strategic point in that OR has a guaranteed customer in the form of BTR and BTW. This makes certain products commercially feasible because it provides for an anchor customer. It’s difficult to imagine that OR would have invested in FTTC without a major customer making that commitment in terms of volumes. Only BTR would commit (and put in all the marketing effort). Other operators have their own products to defend (ADSL on LLU) and were, to put it mildly, very lukewarm in promoting FTTC.

      In any event, BT belongs to its shareholders. It’s private property, and interference in that has to be subject to due process and overriding public interests (such as competition issues). It’s simply not public property that can be rearranged on a whim of a regulator.

    • GNewton

      @SteveJones: So how else then would you sort out the big mess known as BT?

    • Steve Jones

      Whatever BT is, it is not a “big mess”. It’s at the hub of what is an immensely complex web of companies. If, as Ofcom has seemed to decid, it wants minimum wholesale costs, functional separation between retail supplier and the manifest interfaces that imposes, then something will give. If Ofcom and the retail companies want better service then, ultimately, that will mean employing more people, putting some spare capacity in the system. That’s true whether there is full separation or not.

      If you are talking about updating the network with fibre (and servicing more remote locations) then it would require a complete change to the regulatory situation.

      The first think I would do is create two separate infrastructure markets. One where there is infrastructure competition (namely VM areas) and the other where there is not. I’d relax price controls in the infrastructure competition area on the basis that infrastructure competition will keep prices down. Note that this means there will be no cross-subsidy from urban to rural areas.

      In the “monopoly” areas without meaningful infrastructure competition I would then use cost based price regulation (as now), but with the cost base and infrastructure for those areas. That will inevitably mean that wholesale prices will go up, but then I’d simultaneously put in some USOs on broadband provision and speed. Also, the higher wholesale cost would attract infrastructure competition. I would also gradually relax the requirement for mandatory MPF & LLU product with a timetable. I’d add some further incentives to push fibre out into the harder to reach areas. Note that this latter is a bit beyond mere market regulation.

      Note, that in many ways, in rural areas fibre makes more sense due to the distances involved and the issues of power. In urban areas g.fast might make much more sense with higher population densities and shorter cable runs.

    • GNewton

      @SteveJones: Thanks for sharing your thoughts on this.

      By “BT mess” I mean the poor customer services with this company (see e.g. https://business.forums.bt.com/t5/Feedback-general-chat/bd-p/Intros, or http://www.ispreview.co.uk/review/products/7.html, or https://uk.trustpilot.com/review/www.bt.net, etc). These are real customers, too many of them, who experienced first hand that there is something fundamentally wrong with this company.

    • FibreFred

      So you have posted some complaints on a supplier forum wow!!

      Show me a supplier site that doesn’t have complaints, what point are you proving that bt gets complaints like other suppliers do across all industries?

    • FibreFred

      Are you going to show me a supplier site forum with no complaints?

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