Job losses at UK telecoms firm are a lesson in the perils of standing still
British Telecom cemented the Thatcherite ideal of privatisation but its 10,000 job cuts show it couldn't keep up with an ever-changing world, writes Damien McElroy
At school, there was a boy in class whose father was an executive at British Telecom (BT). I still remember his boasts of how the privatisation of the state telecoms arm in 1984 paid for a family skiing holiday.
When the company announced last week that more than 10,000 jobs would be lost in an overhaul, there was little cheer surrounding BT. It is in trouble and an object lesson in the perils of standing still in a changing world.
The sale of BT was a trailblazing moment for Britain and its place in the world.
It cemented the Thatcherite ideal in the global consciousness.
As then prime minister Margaret Thatcher was able to boast, the BT sale was the first of an era in which state-owned assets were corporatised and subjected to market forces.
“From France to the Philippines, from Jamaica to Japan, from Malaysia to Mexico, from Sri Lanka to Singapore, privatisation is on the move,” she declared. “The policies we have pioneered are catching on in country after country.”
John Redwood, a senior Conservative at the heart of the Thatcher revolution, once said that “men in white coats” were waiting in the wings to cart away Mrs Thatcher and her team, anticipating the failure of the float to gain the support of the City of London.
The over-subscribed offer inaugurated an era of popular capitalism, in which many millions of British citizens became direct shareholders.
The catchphrase “tell Sid” from the British Gas advertising campaign remains recognisable to this day.
Yet the BT sell-off did not resolve all the company’s issues. It has flip-flopped over the years on various sectors facing technological change.
It first sold off its mobile networks and has since invested heavily to rebuild its presence. The results announced last week – in which it declared a profit – estimated the pension deficit at an eye-watering £11 billion.
Employees like my schoolfriend’s father have been an expensive legacy for the private company, enjoying perks and final salary-based payments for decades after their retirement.
It has also not been the corporate whizz that its illustrious brand would suggest.
A debacle in Italy, where its businesses were incompetently run, has cost it hundreds of millions and damaged the managers' reputation.
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But there are two big flaws in the BT business model that are being exposed by current business trends and could seal its fate. Rattled by the rise of competitors with sport broadcasting origins, BT decided to enter the arms race for television rights.
It has spent £5 billion in recent years for packages of Premier and Champions League football competitions as well as broadcasting European rugby.
Its sports operations occupy a big part of the media centre built for the 2012 London Olympics.
According to one critique of the company accounts, the sums spent on sport are bigger than the £3.7 billion it has allocated for investment in its core business, as well as the £4 billion it needs to pour into the pension fund to run down the deficit by 2020.
One British newspaper warned last week that sport investment had an uncomfortable parallel with the efforts of Kodak to diversify into pharmaceuticals when its instant photograph business was hit by technological change in the early years of this century.
There is no need to write off BT as the inevitable loser in the digital revolution, which is forcing countries to “fibre up” as rapidly as possible.
It retains a government-backed mandate to roll out connectivity throughout the country. It has chosen, by going back into the mobile business, to be a competitor in the 5G expansion.
The question is if it has the resources to match these ambitions. Its capacity is in doubt partly because the Thatcher privatisation did not tackle the pension issue. Then its tangential dive into sports came at a time when prices were soaring but the overall audience relatively slow growing.
The stakes for the country are high since it both relies on BT as a national platform for its communications infrastructure and as a corporate titan.
With limited resources, BT has chosen a curious compromise strategy. It plans to roll out new high-speed capacity, known as fibre to the home. Fibre upgrades will be installed to connect the customer to its network exchanges but these rely on an old copper network stretching from John O’Groats to Lands End.
At a time when all-fibre states, notably South Korea, have leapfrogged, the British model resembles an old fashioned compromise from a state-owned, resource-starved entity.
The result is a slip-up in the starting blocks of a new communications era that dogged Britain in the 1970s. Mrs Thatcher would no doubt be dismayed at the tarnished record of her golden child.
Updated: May 12, 2018 08:25 PM