BT's post-COVID message to UK: pay us more as we pay you less

The average Brit must pray there aren't more BTs in the land. The UK telecom incumbent will next year raise its prices by the rate of inflation plus 3.9%, a formula it cooked up that bothered nobody when costs were rising by 2% annually and not at the double-digit levels of the post-lockdown apocalypse. BT is also refusing to meet staff demands for inflation-matched pay rises, insisting the proles should be happy with a range of 3% to 8%.

BT is basically expecting the British public to take the hit. The takeaway message? Pay us more even though we're paying you less (in real terms). What adds to the sense of injustice is the 32% pay increase that CEO Philip Jansen collected in BT's last fiscal year, after its share price had dropped a fifth under his tenure. To the average person, this must all smell worse than one of the underground tunnels where BT lays cable.

Jansen has now admitted jobs will go in the latest round of cost cutting, which seeks to remove another £500 million ($565 million) in expenses by the end of 2025 (on top of the £2.5 billion ($2.8 billion) already planned). BT is now at the sharing-bathwater stage of its savings plan. You can almost envisage its small army of mid-level managers urging staff to look down the back of sofas on the way out of headquarters and pop any loose change they find into a new kitty for network equipment.

(Source: BT)
(Source: BT)

Unions are the main barrier to layoffs, and one must wonder how many people BT would employ if these vestiges of employee rights had vanished. After falling from nearly 107,000 in 2018 to little more than 98,000 in March, BT's staff numbers had rebounded to almost 100,000 in September. Employing technicians and IT staff turns out to be cheaper than using subcontractors. Still, this remains one bloated telco by comparison with its peers.

Less efficient than the Italians

No doubt, a former state-owned monopoly with universal service and other regulatory obligations is bound to employ more people than a mainly mobile operator like Vodafone. But this doesn't explain the mismatch between BT and Europe's other former state-owned monopolies. Deutsche Telekom owns fixed-line incumbents in Croatia, Greece, Hungary, Romania and Slovakia – besides Germany – and has mobile subsidiaries throughout Europe. Yet outside the US it employed fewer than 142,000 people last year and made 18% more than BT in sales per employee (using today's exchange rates).

Spain's Telefónica, with major assets in Brazil, Germany and the UK, had fewer than 108,000 employees in 2021 and made 50% more in per-employee sales. At Orange, headcount was about 140,000 and per-employee sales were about 26% higher. Even Telecom Italia, generally seen as the most troubled of all European incumbents, looked more efficient on this basis, employing about 52,000 people last year and generating about 22% more in sales for each of them.

Unfortunately, Jansen's relations with the Communications Workers Union (CWU) are at a low. "I am really hopeful we will find a way forward but to be crystal clear the pay award we described for April 2022 – that matter is now closed," he said uncompromisingly on BT's earnings call this week. "We are desperately sad that our staff have taken industrial action," he said later, referring to the strikes that led to some broadband losses for BT in the quarter.

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The CWU has, of course, drawn attention to Jansen's pay award last year, describing it as "management contempt" for staff in an October press release. It was harder to agree with the organization this week when it suggested BT was thriving financially, highlighting its "growth in revenue, EBITDA and progressive dividend for future years to shareholders."

That is all strictly true, but BT's annual sales have fallen by £3.3 billion ($3.7 billion) in five years, its share price is down 57% over the same period and its annual net profit has slumped 58%, to just £1.27 billion ($1.44 billion). BT's net debt, meanwhile, has soared from less than £9 billion ($10.2 billion) in early 2017 to more than £18 billion ($20.3 billion) at the end of March, and interest rates are now on the increase.

Energy costs are spiralling, competition in the full-fiber market has some teeth and suppliers want to charge BT more for the network products it needs. With all that going on, BT's desire to juice income and shrink costs is understandable. But the virtue-signaling days of lockdown solidarity, when BT gushed about not cutting jobs and Jansen donated a part of his salary to the NHS, seem an eternity ago.

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— Iain Morris, International Editor, Light Reading

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