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BT Group

BT Group plc (formerly British Telecommunications plc) which trades as BT (bee tee) (previously known as British Telecom and still occasionally referred to by that name) is the privatised UK state telecommunications operator. It is the dominant fixed line telecommunications and broadband Internet provider in the United Kingdom. BT operates in more than 170 countries and almost a third of its revenue now comes from its Global Services division.

BT Group is the largest communications service provider in the United Kingdom. It is also one of the largest communication companies in the world.

Businesses of BT

British Telecommunications plc (BT) is a wholly-owned subsidiary of BT Group plc and encompasses virtually all businesses and assets of the BT Group. BT Group plc is listed on stock exchanges in London and New York.

BT runs the telephone exchanges, trunk network and local loop connections for the vast majority of British fixed-line telephones. Currently BT is responsible for approximately 28 million telephone lines in the UK. Apart from Kingston Communications, which serves Kingston-upon-Hull, BT is the only UK telecoms operator to have a Universal Service Obligation (USO) which means it must provide a fixed telephone line to any address in the UK. It is also obliged to provide public call boxes.

BT's businesses are operated under special government regulation by the British telecoms regulator Ofcom (formerly Oftel). BT has been found to have Significant Market Power in some markets following Market Reviews by Ofcom. In these markets, BT is required to comply with additional obligations such as meeting reasonable requests to supply services and not to discriminate.

As well as continuing to provide service in those traditional areas in which BT has an obligation to provide services or is closely regulated, BT has expanded into more profitable products and services where there is less regulation. These are principally, broadband internet service and bespoke solutions in telecommunications and information technology.

BT Group is organised into the following business divisions:

  • BT Retail: Retail telecoms services to consumers
  • BT Wholesale: Wholesale telecoms core trunk network
  • Openreach: fenced-off wholesale division, tasked with ensuring that all rival operators have equality of access to BT's own local network
  • BT Global Services: Business services and solutions (formerly BT Ignite and BT Syntegra)
  • BT Exact / One IT: consultancy and internal IT. There is some overlap with BT Global Services. R&D functions are no longer handled by BT Exact.
  • Group operations: handles security, research and development, and other functions for BT Group Plc such as legal services

From 1 July 2007 two additional divisions were put in place:-

  • BT Operate took responsibility from BT Wholesale for the roll-out and maintenance of the group's new IP based fixed-line network, known as 21st Century Network (21C).
  • BT Design pulled together IT designers from BT Retail, BT Wholesale, BT Global Services and OneIT to design services on the 21C network.

History of BT

A number of privately owned telegraph companies operated in Britain from 1846 onwards. Among them were

  • The Electric Telegraph Company,
  • British and Irish Magnetic Telegraph Company,
  • British Telegraph Company,
  • London District Telegraph Company,
  • and the United Kingdom Telegraph Company

The Telegraph Act of 1868 passed the control of all these to the newly formed GPO (General Post Office)'s "Postal Telegraphs Department"

With the invention of the telephone by Alexander Graham Bell in 1876 the GPO began to provide telephone services from some of its telegraph exchanges. However in 1882 the Postmaster-General, Henry Fawcett started to issue licences to operate a telephone service to private businesses and the telephone system grew under the GPO in some areas and private ownership in others. The GPO's main competitor the National Telephone Company emerged in this market by absorbing other private telephone companies, prior to its absorption into the GPO in 1912.

The trunk network was unified under GPO control in 1896 and the local distribution network in 1912 . A few municipally owned services remained outside of GPO control. These were Kingston upon Hull, Portsmouth and Guernsey. Hull still retains an independent operator, Kingston Communications, though it is no longer municipally controlled.

In 1969 the GPO, a government department, became the Post Office, a nationalised industry separate from government. Post Office Telecommunications was one of the divisions.

Formation of British Telecom

The British Telecom brand was introduced in 1980. On 1 October 1981, this became the official name of Post Office Telecommunications, which became a state-owned corporation independent of the Post Office. In 1982 BT's monopoly on telecommunications was broken, with the granting of a licence to Mercury Communications.

Privatisation

The privatisation took place in 1984, with the sale of 50.2% of the shares in the company (incorporated in 1984 as British Telecommunications plc) to the public in November.

The company changed its trading name to 'BT' on 2 April 1991. The remaining state holdings in the company were sold in 1991 and 1993 . In 1996 Peter Bonfield was appointed CEO and Chairman of the Executive Committee, promising a "rollercoaster ride.".

In the 1990s, BT entered the Irish telecommunications market through a joint venture with the Electricity Supply Board, the Irish state owned power provider. This venture, entitled Ocean, found its main success through the launch of Ireland's first subscription-free dial-up ISP, oceanfree.net. As a telecoms company it found much less success, mainly targeting corporate customers. BT acquired 100% of this venture in 1999.

In 2000, BT acquired Esat Telecom Group plc, and all its subsidiary companies, and Ireland On Line. It also purchased Telenor's minority shareholding in Esat Digifone. The Esat Telecom Group was split in two: the landline and internet operations were combined with Ocean and became part of BT Ignite. Esat Group was renamed Esat BT in July 2002, and eventually BT Ireland in April 2005. Esat Digifone became part of BT Wireless before being spun off into a seperate independent company mmo2 plc (now Telefónica Europe. EsatBT installed the first DSL lines in Ireland, to try and compete heavily with former state telecoms company eircom and operate one exchange, in Limerick. They are the 2nd largest Fixed line Telco in Ireland behined incumbent eircom.

BT’s attempted global alliances

MCI

In June 1994 BT and MCI launched Concert Communications Services which was a $1 billion joint venture between the two companies. Its aim was to build a network which would provide easy global connectivity to multinational corporations.

This alliance progressed further on 3 November 1996 when the two companies announcement that they had entered into a full merger agreement to create a global telecommunications company to be called Concert plc, which would be incorporated in the UK with headquarters in both London and Washington DC. This would have given BT an entry into the US market and MCI a global reach. The merger proposition gained approval from the European Commission, the US Department of Justice and the US Federal Communications Commission and looked set to proceed.

However, in light of pressure from investors reacting to the slide in BT's share price on the London Stock Exchange, BT reduced its bid price for MCI, releasing MCI from its exclusivity clause and allowing it to speak to other interested parties. On 1 October 1997, Worldcom made a rival bid for MCI which was followed by a counter-bid from GTE. Because MCI used its stock to leverage its purchase, as opposed to cash (used by BT), it was able to outbid BT. MCI accepted the Worldcom bid and BT pulled out of its deal with a generous severance fee of $465 million.

BT made even more money when it sold its stake in MCI to Worldcom in 1998 for £4,159 million on which it made an exceptional pre-tax profit of £1,133 million. This was advised by corporate bankers, who saw the early signs of WorldCom's collapse. As part of the deal, BT also bought out from MCI its 24.9% interest in Concert Communications, thereby making Concert a wholly-owned part of BT.

The reaction to the failure of the deal in the City of London was critical to the future of then Chairman Iain Vallance and CEO Peter Bonfield, and the lack of confidence from the failed merger would ultimately lead to their removal.

AT&T

As BT now owns Concert, and still wanted access to the North American market, it needed a new partner. An AT&T/BT option had been mooted in the past, but stopped on regulatory grounds due to their individual virtual monopolies in their home markets. By 1996, this had receded to the point where a deal was possible. However, the former monopolies clashed in management and culture - and the alliance never really worked from the start. Also, during the proposed MCI merger position, BT/MCI had placed a series of nominated customers inside Concert to overcome regulatory issues, leaving Concert with a sales force. On merger with AT&T, it was reversion to delivery of a series of Global products, and two competing owners - which robbed Concert of revenues and left its management disillusioned.

At its height, the Concert managed network directly reached more than 800 cities in 52 countries, and interlinked to about 240 other networks to extend access to 1,300 cities in 130 countries. Although Concert continued signing customers, its rate of revenue growth slowed, so that in 1999 David Dorman was made CEO with a brief to revive it.

In late 2000 the BT and AT&T boards fell-out - partly due to each partner's excess debt, and the resultant board/s room clear-out; partly due to Concerts $800M annual losses. AT&T recognized that Concert was a threat to its ambitions if left intact, and so negotiated a deal where Concert was split in two in 2001: North America and Eastern Asia went to AT&T, the rest of the world and $400M to BT. BT's remaining Concert assets were merged into its BT Ignite, later BT Global Solutions group .

2001 debt crisis

By 2001, BT had a debt of £30Bn, much of which was acquired during the bidding round for the 3rd generation mobile telephony (commonly known as 3G) licences. It had also failed in its series of proposed global mergers, and the funds flowing from its then virtual monopoly of the UK market place had been largely removed. It was also headed by two executives who had little support from the London Stock Exchange, particularly in light of a 60% drop in share price in 16 months

The first manoeuvre was to create confidence in the management team. Philip Hampton joined as CFO, and in April 2001 Sir Iain Vallance was replaced as Chairman by recognised turn around expert Sir Christopher Bland. The company then began to sell off or sell and lease back a large part of its assets.

Europe’s largest rights issue

In May 2001 BT carried out corporate Europe’s largest ever rights issue, allowing it to raise £5.9 billion. A few days before, it also sold stakes in Japan Telecom and J-Phone Communications (a mobile operator) and in Airtel of Spain to Vodafone.

Sale of Yell Group, and the demerger of O2

In June 2001 BT's directory business was sold as Yell Group to a combination of private equity firms Apax Partners and Hicks, Muse, Tate & Furst for £2 billion.

A large demerger followed in November 2001, when the former mobile telecommunications business of BT, BT Cellnet, was hived off as a separate business named "mmO2". This included BT owned or operated networks in other countries, including BT Cellnet (UK), Esat Digifone (Ireland), and Viag Interkom (Germany). All networks now owned or operated by mmO2 (except Manx Telecom) were renamed as O2. The de-merger was accomplished via a share-swap, all British Telecommunications plc shareholders received 1 mmO2 plc and 1 BT Group plc (of which British Telecommunications is now a wholly owned subsidiary) share for each share they owned. British Telecommunications plc was de-listed on 16 November, and the two new companies started trading on 19 November.

Aftermath

At the end of the series of sales, in October 2001 Sir Peter Bonfield resigned, and was replaced by former Lucent CEO Ben Verwaayen.

Having promised a "rollercoaster ride", during Bonfield's tenure the share price went from £4 to £15, and back again to £5. Bonfield's salary to 31 March 2001, was a basic of £780,000 (increasing to £820,000) plus a £481,000 bonus and £50,000 of other benefits including pension. He also received a deferred bonus, payable in shares in three years' time, of £481,000, and additional bonuses of £3.3 million. Andreas Whittam Smith writing in The Independent newspaper called Bonfield, Chairman Vallance and Deputy Chairman Lord King "The men who broke the bank at British Telecom".

mmO2 plc was replaced by O2 plc in a further share-swap in 2005, and subsequently bought in an agreed takeover by Telefónica for £18 billion and delisted.

BT's recent developments

In February 2005, BT acquired El Segundo, California -based telecoms giant Infonet (now re-branded BT Infonet), giving BT access to new geographies. In April 2005, it bought Radianz (now rebranded as BT Radianz), which expanded BT's coverage, provided BT with more buying power in certain countries and importantly gave access to the financial markets.

Openreach was announced in September 2005 at the instigation of Ofcom to provide an open and equal service of provision and repair in the "last mile" of copper wire. This business was formed from 25,000 engineers previously employed by BT's Retail and Wholesale divisions. It is designed to ensure that other communications providers (CPs) have exactly the same operational conditions as parts of the BT group. It opened for business on 11 Jan 2006.

In August 2006 BT acquired online electrical retailer Dabs.com for £30.6 Million, which saw a slight increase in share price. The BT Home Hub was also launched in June 2006.

BT is investing 75% of its total capital spending, put at £10 billion over five years, in its new Internet Protocol (IP) based 21st century network (21CN). Annual savings of £1 billion per annum are expected when the transition to the new network is complete in 2010, with over 50% of its customers transferred by 2008. In October 2006 BT took a major step forward when the actual process that will be used to transfer the first customers on to 21CN was successfully tested at Adastral Park in Suffolk.

In January 2007, BT acquired Sheffield based ISP, PlusNet plc, adding an additional 200,000 customers. BT have stated that PlusNet will continue to operate separately out of their Sheffield head-office. Shortly after the acquisition, BT removed Lee Strafford (CEO) and Neil Comer (Finance Director) from the company. Neil Laycock has been confirmed as PlusNet's new CEO.

1 February 2007 BT announced it had agreed terms to acquire International Network Services Inc. (“INS”), a leading global provider of IT consulting and software solutions. This professional services acquisition will increase BT's presence in North America and will significantly enhance BT's consulting capabilities.

On 20 February 2007 BT announced that Sir Michael Rake, the current chairman of accountancy firm KPMG International, is to succeed Sir Christopher Bland, who is due to step down in September.

20 April 2007 BT announced the acquisition of Comsat International which provides network services to the South American corporate market.

BT acquired Wire One Communications in June 2008 and folded them into BT Conferencing, their existing conferencing unit as a new video business unit. BT Conferencing is now the global leader in video conferencing services and solutions.

On 28 July 2008, BT announced the acquisition of Ribbit, of Mountain View, California, "Silicon Valley's First Phone Company." Ribbit provides Flash/Flex APIs, allowing web developers to incorporate telephony features into their Software as a Service (SaaS) applications.

Environment

In 2004, the BT Group signed the world's largest renewable energy deal with nPower and British Gas, and now all of their exchanges, satellite networks and offices are powered by renewable energy. BT is a member of the Corporate Leaders Group on Climate Change. They signed a letter urging the government to do more to tackle this problem. Janet Blake, head of global corporate social responsibility (CSR) at BT, says that she would like to see incentives that find ways of awarding those companies that focus on climate change by making investments in green business models.

BT has made it clear that they have an ambitious plan to reduce carbon dioxide emissions. Their strategy includes steps to reduce the customer's, supplier's, employee's, and their own footprints. BT has actually pledged to achieve an 80% reduction by the year 2016, which will require further efficiency improvements.

Financial performance

Year ended Turnover (£m) Profit/(loss) before tax (£m) Net profit/(loss) (£m) Basic eps (p)
31 March 2008 20,704 1,976 1,738 21.5
31 March 2007 20,223 2,484 2,852 34.4
31 March 2006 19,514 2,633 1,644 19.5
31 March 2005 18,429 2,693 1,539 18.1
31 March 2004 18,519 1,945 1,414 16.4
31 March 2003 18,727 3,157 2,702 31.4
31 March 2002 18,447 1,461 1,008 12.1
31 March 2001 17,141 (1,031) (1,875) (25.8)
31 March 2000 18,715 2,942 2,055 31.7
31 March 1999 16,953 4,295 2,983 46.3
31 March 1998 15,640 3,214 1,702 26.6
31 March 1997 14,935 3,203 2,077 32.8
31 March 1996 14,446 3,019 1,986 31.6
31 March 1995 13,893 2,662 1,731 27.8
31 March 1994 13,675 2,756 1,767 28.5
31 March 1993 13,242 1,972 1,220 19.8
31 March 1992 13,337 3,073 2,044 33.2

Finance director success

After a pay rise of over 40% last year, BT's chief financial officer, Hanif Lalani, has become one of the very few UK financial directors whose annual remuneration exceeds £1 million.

In recent years, the strategy of BT plc has been to reduce its dependence on traditional voice revenues and instead obtain an increasing portion of its turnover from so-called New Wave revenues. At the heart of this strategy is BT Global Services, which has won many significant contracts in the commercial and public sectors, in part through its portrayal as a "momentum story".

There is, however, increasing disquiet among analysts that the annual growth of the Global Services business has been unimpressive, and that BT has been using prior year adjustments to achieve favourable growth figures.

Take the quarter ended 30 September 2005, for example. At the time, BT said the external revenues of its Global Services division were £1,740m. However, a year later, BT revised this figure downwards to £1,703m. This enabled BT to claim growth of 3.5%, instead of the dismal 1.3% it would have been forced to announce if it hadn't adjusted the prior year's figures.

BT has made a habit of adjusting the previous year's revenue figure every quarter. Only once in the past year has BT adjusted the figure upwards rather than downwards.

Sources

Market position and power

In 1984 the Telecommunications Act set the framework for a competitive market for telecoms services by abolishing BT's exclusive right to provide services. In the early 1990s the market was opened up and a number of new national Public Telecommunications Operators (PTOs) were given licences. This ended the duopoly that had existed in the 1980s when only BT and Mercury were licensed to provide fixed line telecom networks in the UK.

Recent and future plans

  • In June 2006, BT launched BT Total Broadband - new broadband packages, along with the BT Home Hub.
  • BT's 21st Century Network (21CN) is a network transformation project which will see the UK's telephone network move from the present AXE 10/System X Public Switched Telephone Network (PSTN) to an IP/MPLS system. BT envisages annual savings of £1 billion when the transition to the new network is complete (the majority of customers should be transferred by 2008). Capital expenditure is put at £10 billion according to BT's 21CN website
  • In April 2007, BT launched a new online service called BT Tradespace According to BT's corporate website the new service is a "social media platform dedicated to small businesses."
  • In December 2006, BT launched BT Vision, a broadband Television service with the ability to watch programmes from previous weeks or months. According to BT PLC Today, companies including BBC Worldwide, Paramount, Warner Music Group, Cartoon Network and the National Geographic Channel, have already signed deals with BT Vision. Microsoft announced on 9th January 2008 that BT Vision services will shortly be made available on the Xbox 360.
  • In May 2008, BT launched BT Total Broadband Anywhere, an all-inclusive package which offers a free, internet-capable smartphone – the BT ToGo and BT’s Total Broadband service in the home.

BT's "Web patent"

In 2001 BT discovered it owned a patent which it believed gave it patent rights on the use of hyperlink technology on the World Wide Web. The corresponding UK patent had already expired, but the US patent was valid until 2006. Opponents of BT's claim held that the patent had never been valid, due to prior art by both Douglas Engelbart and Ted Nelson's Project Xanadu. Nevertheless on 11 February 2002, BT began a court case relating to its claims in a US federal court against the Internet service provider Prodigy Communications Corporation. The U.S. court ruled on 22 August 2002 that the BT patent was not applicable to Web technology, and granted Prodigy's request for summary judgement. See BT’s “Hyperlinking” Patent Litigation Fails The issue of prior art was thus not addressed.

Controversy

Behavioural Targeting

In early 2008 it was announced that BT had entered into a contract (along with Virgin Media and Talk Talk) with the former spyware company Phorm (responsible under their 121Media guise for the Apropos rootkit) to intercept and analyse their users' click-stream data, and sell the anonymised aggregate information as part of Phorm's OIX advertising service. The practice, known as "behavioural targeting" and condemned by critics as "data pimping", came under intense fire from various internet communities and other interested-parties who believe that the interception of data without users' consent is illegal under UK law (RIPA). At a more fundamental level, many have argued that the ISPs and Phorm have no right to sell a commodity (a user's data) to which they have no claim of ownership. In response to questions about Phorm and the interception of data by the Webwise system Sir Tim Berners-Lee is quoted as saying:

"It's mine - you can't have it. If you want to use it for something, then you have to negotiate with me." - Sir Tim Berners-Lee: 2008

See also

References

External links

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