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BT Restructures, Boasts Best Quarter in 7 Years

BT has announced details of a major restructuring following its £12.5 billion (US$17.9 billion) takeover of major UK mobile operator EE. (See BT Gets Final Go-Ahead for $17.9B EE Takeover.)

The move came as the UK fixed-line incumbent claimed to have enjoyed its best quarterly performance in seven years, thanks largely to rising adoption of its high-speed broadband services.

For its fiscal third quarter, which ended December 31 2015, overall sales rose by 3% to £4.6 billion ($6.6 billion), while profit before tax was up 24%, on a reported basis, to £862 million ($1.2 billion), compared with the year-earlier period. (See BT Reports Fiscal Q3.)

BT Group plc (NYSE: BT; London: BTA) today revealed it will operate six lines of business from April, with parts of the EE business subsumed into divisions targeting business and wholesale markets. (See BT Unveils New Structure.)

The six lines are:

  • Consumer
  • EE
  • Business and Public Sector
  • Global Services
  • Wholesale and Ventures
  • Openreach

EE's business division will become a part of the much larger Business and Public Sector group led by Graham Sutherland, the current boss of BT Business, and serving customers in the UK and Ireland.

As its name implies, that unit will also include parts of BT's Global Services business addressing UK public sector opportunities. BT CEO Gavin Patterson said the move would ensure that Global Services was fully focused on providing enterprise services to customers with a multinational presence.

Source: BT.
Source: BT.

Following the restructuring, each of those divisions will generate about £5 billion ($7.1 billion) in annual revenues, with the business and public sector division employing about 12,000 people and Global Services around 17,000.

EE's MVNE (mobile virtual network enabler) business, meanwhile, will be included in a new wholesale and ventures arm whose CEO will be Gerry McQuade, EE's chief sales and marketing officer for the business sector.

McQuade will effectively be taking over from Nigel Stagg, the former CEO of BT Wholesale, who quit last week. (See BT Wholesale Boss Quits.)

BT Consumer, the part of the business that sells retail services to residential customers, and Openreach , the access networks division, will be largely unaffected by the restructuring.

BT had previously announced that EE would continue to operate as a separate entity following the takeover, and the mobile network operation -- minus some of its business and wholesale elements -- will become the sixth business line in the new-look group.

Marc Allera, formerly EE's chief commercial officer, will be the new CEO of EE, replacing Olaf Swantee, who is leaving the business. (See Allera Will Replace Swantee as EE CEO.)

"We can better organize around customers in the UK by combining BT's focus on SoHo [small office and home office] and SME [small and mid-sized enterprise] customers with the corporate and public sector focus of Global Services and wrap the EE business around both of them," said Patterson during an earnings call with analysts.

Answering questions from analysts, Patterson said that most UK-headquartered multinational players, including a number of clients in the financial services industry, would continue to be served by Global Services following the restructuring.

Despite analyst speculation that BT may eventually decide to phase out the EE brand and use BT Mobile for all of its mobile offerings, Patterson insisted there was little rationale for such a move.

"EE occupies a different place in the market from BT -- BT is from the household heritage and as we add mobile it comes down largely to increasing capability around broadband outside the home, while EE is the market leader in 4G … It starts from the position of a younger customer and builds from there," he said.

BT has talked about developing bundled offerings that lump various fixed and mobile services into one package, but it says the takeover of EE is also about developing new "converged" products for its customers.

That looks set to become a priority for the new business and public-sector unit. "It will run EE's B2B function allowing us to provide truly converged product and make the most of the opportunity that EE provides in this market," said Patterson.

BT has estimated that its annual revenues will increase to about £23.8 billion ($34 billion) following the EE takeover, from £18 billion ($25.7 billion) previously, with EBITDA rising to £7.8 billion ($11.1 billion) from £6.3 billion ($9 billion).

On a standalone basis, it expects its underlying revenues to grow by 1-2% in the current financial year (ending in March) and is guiding for "modest" growth in EBITDA.

Executives said the third quarter had been one of the operator's best in years due mainly to a strong performance at BT Consumer, which saw revenues increase by 11%, to £1.2 billion ($1.7 billion).

The performance was driven by an increase in customer spending on new TV and mobile products, with BT Mobile -- the MVNO BT operates on EE's network -- growing its customer base to more than 300,000 in total.

Spurred by fiber rollout activities, Openreach also flagged topline growth of 3%, to £1.3 billion ($1.9 billion), while Global Services saw revenues drop by 1%, to £1.7 billion ($2.4 billion), but rise 2% when transit activities were excluded from consideration.

Patterson cited good progress at Global Services on the development of new of cloud offerings for enterprise and public sector customers.

BT's shares had risen by 3.2% during trading on the London Stock Exchange before lunchtime.

Next page: Storm clouds ahead?

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