Strikes, ‘food banks’, corporate raiders: BT falls from grace after Covid plaudits

BT’s first national strikes in 35 years, which kick off on Friday morning, are just the latest in a series of headaches to have beset the telecoms company.

Amid a backlash over accusations that it set up a “food bank” for cash-strapped staff and the growing threat from a stake-building corporate raider, Philip Jansen’s mission to recreate BT’s glory days as a “national champion” seems to slipping away.

It is a steep fall from grace for BT, a pandemic winner. The company’s critical role in maintaining the UK’s internet network as a locked-down nation gobbled up bandwidth like never before for work and entertainment put BT and telecommunications infrastructure in the spotlight.

Engineers had to deal with attacks and 5G masts were targeted by coronavirus conspiracy theorists, call centre teams staffed the phones, including the country’s 999 lines, and Jansen handed out a “Covid bonus” to almost 60,000 frontline workers.

However, unions, already at loggerheads with BT management over a restructuring to modernise the sprawling company, saw it as an attempt to “buy off” members instead of offering a “real pay deal”.

The emergence of a so-called “food bank” at EE’s call centre in North Tyneside last month – which BT says is a “community pantry” for shift workers with no time to nip to the shops – has become a symbol of the discontent and divide between lower-paid employees and management.

“It was still there when I was there last week,” said Joanne Shaftoe, the north-east regional chair at the Communications Workers Union (CWU), who has been employed by BT since before the last national strike in 1987. “I think they dare not take it down as that would be an admission it was wrong in the first place. But the donations on the table don’t change. So people are either too embarrassed to use it or donate food to it. It is an embarrassment it was decided it was needed in the first place.”

Strikes on Friday and Monday by up to 28,000 engineers who maintain the UK’s broadband network and 9,000 call centre workers are expected to cause disruptions to broadband installations, repairs and customer inquiries.

Staff point to BT’s £1.9bn in pre-tax profits – with the company reporting on Thursday that revenues had increased by 1% after its first sales growth for five years – and Jansen’s 32% increase in annual remuneration to £3.5m, as evidence that the “insulting” pay offer on the table could be improved. The company says it would be its best pay award given in two decades.

“The problem for the unions is that if Royal Mail goes on strike we don’t get letters, if railway workers strike the trains stop, but if telecoms workers go on strike the system doesn’t switch off because it requires little manual intervention,” said one industry source. “The figure the unions never mention is the £4.8bn direct cost of its 100,000 workforce annually. BT’s post-tax profits are £1.3bn; its wage and pension bill is not far off four times bigger.”

As well as the battle within, part of a painful £2bn restructure that includes reducing BT’s physical footprint from 300 to 30 sites across the UK and staff numbers by more than 13,000, Jansen is facing the strategic uncertainty of having the telecoms billionaire Patrick Drahi as BT’s biggest shareholder.

Drahi, who has built up an 18% stake, has not pushed for strategic change or asked for a seat on BT’s board to match that of the second biggest shareholder, Deutsche Telekom. The move by Drahi’s Altice UK is being investigated under the National Security and Investment Act, which is designed to protect assets of strategic national importance from foreign takeover.

The act set the threshold for “control” of a company at as low as 25%. City sources say the fact that Drahi is being investigated while controlling a smaller stake is a warning shot across the bows, and when the government does report back he will not be made to divest his stake.

“The expectation is that Drahi owning an 18% stake with no board representation will be fine,” said one City source. “The investigation is more about signalling ‘we are going to use this act to check things are OK’. Of course, I do not think it would be OK for Drahi to try and buy BT – as a strategic national asset, it simply wouldn’t be allowed now.”

Now in his fourth year as chief executive, Jansen has been unable to drive BT’s market value, with the company’s share price still stubbornly down more than a fifth from when he took over from Gavin Patterson on 1 February 2019.

And yet after decades of feet-dragging by bosses to protect BT’s market position and commercial revenues, at the cost of becoming an embarrassing global laggard in next-generation broadband, Jansen has received plaudits for investing in national communications infrastructure.

Early in the pandemic, Jansen suspended BT’s annual dividend for the first time since the company was privatised in 1984 to help free up £15bn to upgrade the UK’s slow copper-based internet network to full fibre for all homes and businesses, a pledge made by Boris Johnson while campaigning to be prime minister.

BT, which after years of regulatory wrangling has managed to secure guarantees of favourable commercial returns from Ofcom on its investment upgrading the network, has pledged to get full fibre to 25m of the UK’s 32m premises by the end of 2026.

“I think BT is doing all right, actually, in terms of doing what they said they would,” said Carl Murdock-Smith, a senior telecoms analyst at Berenberg. “BT has significantly increased investment in fibre since Jansen has come in. They have moved from debating the regulatory regime, creating a model for economic return, to execution mode. Now it’s ‘let’s go out and do this’. The share price languishing lower than when Jansen walked in is largely because the company is investing more, and telecoms investors like near-term cashflows.”

BT has finally managed to engineer an exit from its expensive foray into pay-TV sport, which has cost it billions for UK rights to competitions such as the Champions League while achieving the aim of stemming the loss of millions of broadband customers to Sky.

A £633m joint venture with Warner Bros Discovery (WBD), which owns Eurosport, significantly cuts its financial commitment to BT Sport – which is one of a number of broadcasters being investigated by the competition watchdog for “cartel-like behaviour” fixing freelance rates for workers – while also allowing WBD to potentially take full control within four years.

The biggest headache now facing all telecoms providers is the cost of living crisis. Earlier this year BT and its rivals increased bills by almost 10% – the consumer price index rate of inflation in January plus 3.9%. The company attributed the majority of the sales growth announced on Thursday to the price hike.

While telecoms companies came in for some criticism for pushing through this year’s rise, it came before inflation hit a 40-year high and the real impact of soaring food and energy prices had begun to be felt by households.

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“This year the focus is on gas and electricity rises, much larger cost increases for consumers, but by the time we get to the next general election we will have had two more rises compounding bill increases,” said Murdock-Smith. “With the cost of living crisis front and centre, I think it will become a political football.”

As Jansen attempts to reshape the image of the company for the future – in April the company quietly announced that after more than three decades the BT brand would take a back seat in favour of pushing the more youthful EE to the fore – he will need to balance the potential fallout from continuing to push through hefty bill increases while managing its soaring cost base.

“The next big discussion going forward is the mechanic used for annual price increases for consumers,” said Murdock-Smith. “In the medium term, how politically acceptable is it as a pricing dynamic, and will it become a focus in the next general election?”

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