Don't cry for Charles Dunstone...

Yesterday TalkTalk reported it's results to the City and people were not happy with what they were telling them.

The once wonder of the telecoms industry is turning into his idol Richard Branson, but not in the way he dreamed. It's only a question of time when TalkTalk is no more rather than one of if.

Dunstone has built his fortune on the spin that with him you get the best price be it Mobile phones, fixed line telephony or broadband like some spiv working the crowd in Romford Market. The problem with TalkTalk is that the customers are now not prepared to pay the actual cost of delivering fibre broadband and having seen an exodus of customers because of poor service and hacking it has had to offer contracts at below cost to keep the numbers respectable.  The perfect storm has also seen it now having to fix the holes in its finances with a cash injection almost equal to 12 months income.

Since the days of FreeServe I have said that the issue with UK Broadband investment that needed to be addressed was that the Retail Price never reflected the cost of the service or offered a Return on Investment that justified major spending. The TalkTalk partners in a project to bring superfast fibre to York have got their fingers burned from working with Dunstone to the extent that don't wish to undertake anymore work with him.  Dunstone thinks that because he has a large customer base someone else will provide the money. that might have worked 20 years ago but not today.

As others invest in the building of Superfast Broadband Dunstone will be on the sidelines shouting that its a rigged market and BT has failed to invest in Wholesale services that would allow him to stay in business. TalkTalk's strategy in terms of maintaining it's customer numbers means that he will invest in marketing and promotions at the expense of infrastructure and customer service which means that he will have difficulty in get those customers to pay more. Thus we are looking at decline to the point of bankruptcy nobody will buy them out of the hole they have dug for themselves.

BT Broadband plans, to little to late?

Woke up this morning to CEO of BT Openreach talking on Radio 4 about the plan to accelerate his Fibre to the Premises build programme so that he has a chance of hitting 3m homes and buildings by 2020. In order to work 50% faster than it is at the moment BT will be hiring 3,000 engineers.  It would seem that HR Director Kevin Brady has massive task on his hands given that candidate require very little in entry skills if this is anything to go on. 

When you look at the investment made to deliver Fibre to Milton Keynes by rival CityFibre it looks like the plans of BT are not aggressive enough and by the time they have hit the 10m target the technology they are deploying is unlikely to be capable of serving needs of 5G mobile.

Ofcom BT proposal is a fudge rather than regulation that UK will need following the EU referendum

Whilst having breakfast today Ofcom published it proposal for BT Openreach following the year long review of how structural separation is servicing the market a decade after it's creation. Ofcom's Chief Executive Sharon White spoke on BBC Radio 4's Today programme to explain what the thinking was on fixing the failed provision of broadband and the fastest way to to turn things around. Her key message was that spinning out Openreach was too complex and would take too long and so forcing BT to create an independent Chair and improved reporting was going to allow changes to take place faster.

BT didn't seem to have any problems splitting Cellnet out and thus should not have issues with Openreach.  The problem this time is the state of the Pension scheme and complex contracts.

After White had left the radio studio her place was taken by BT's CEO and his opposite number at Talk Talk to have their say on the proposal. As could be expected Dido Harding was disappointed that Ofcom did not take a harder line. Gavin Patterson's response could have been a comedy routine at the BT managers away day, his best line was, "BT does not game Ofcom".

Over the past ten years BT has spent £10Bn investing in Broadband Services and in an effort to hold off break up offered to spend £6Bn in the next three years.  Too often consumers and businesses in Britain are complaining that the current infrastructure is woeful and the offer to double spending in the next three years is not going to raise satisfaction.

The 2010 spending review by George Osborne resulted in budgets cuts to Ofcom which means that a review that should have been completed in 12 months will take over two years.  BT and its rivals all have more lawyers and economists than Ofcom and are capable of gaming the regulatory processes.

Some on Twitter seem to think that this is another victory for BT 

yes, it is BT 1: Ofcom 0. Conduct regulation has failed, and this is just more failure. @AnnRobinson8

— John Fingleton (@JohnFingleton1) July 26, 2016

John Singleton is the former head of the OFT and he seems underwhelmed by the proposals.

If we want better infrastructure for broadband then it's best served by Openreach becoming a business in its own right and being able to raise capital on its own behalf rather than competition for budget with other BT subsidiaries and group commitments such as Pensions which at the moment is £12Bn in debt. Theresa May's new Industrial strategy hopefully will see the Government reject the proposal and seek BT's break up.

So just how many Mobile Networks does a country like Britain need?

Today the Competition and Markets Authority published a letter to the European Commissioner calling for the merger of Three and O2 to be blocked to protect the consumer. I had to check that it was not written ten days ago, the current government believes in the Free Market and the market has shown that the UK is not large enough to support five and now four network owners.

If the CMA wanted to protect the consumer then was BT allowed to buy EE and why was it not forced to spin out Openreach?

The role of Ofcom should be to provide assurance that the market for Mobile Infrastructure is not manipulated by the players in the market and that they are fulfilling the terms of licences granted via spectrum sales by Government.  The failure is not that Overseas Investors can no longer justify investment in an extremely competitive market but rather Regulators are under resourced and qualified.  The 2010 spending review by George Osborne and subsequent budgets has seen the money available to manage Ofcom fall and the remit rise this means that a regulator that had been struggling now is not fit for purpose.  Rather than resource the service correctly we have a Government that is taking others to undertake the role for it.

The second generation of mobile expansion saw just four networks build the industry at the fastest pace, with innovative product launches which the CMA now feels is a risk to the consumer! Alongside the network owners we also have a number of MVNOs that offer services to customers at a range of prices.  We might have fewer retail options on the high street with the demise of a number of independent retailers for the time of mass adoption of mobile but we are unlikely too see price rises as a result of Three buying O2.

I hope that the European Regulator has far more economists than the CMA and Ofcom and realises that the UK consumer is not able to fund adequately four mobile network operators.      

BT has got NO friends!

Over the last few weeks it seems that the current Ofcom review of BT is unlikely to follow the pattern of "business as usual" when it comes to outcomes.  These could mean that the chickens finally come home to roost at BT.

Over the course of a week BBC Radio4 featured the failures of Broadband Britain to live up to promises on the Today programme.  It was not until 4 negative features that BT CEO Gavin Patterson finally agreed to an interview and that was not face to face rather it was prerecorded and broadcast on a Saturday morning.  You have to ask just what the PR team were doing, was it a failure or arrogance?

This weekend Chris Bryant wrote to The Telegraph calling for the break-up of BT because it had failed to provide the Broadband needed of UK PLC despite £1.8bn of grants to do so.  This is a shadow minister prepared to outline Labour Party policy in the middle of a Leadership election!

These events on there own might lead you to think that BT will be alright, it might find itself facing tighter regulation but it's unlikely that a break-up will be forced on it.  However take a look at the fact that industry rivals that are also calling for a split are also donors to the Conservative Party and you might start to thing that BT could be facing years of legal challenges and disruption.  Given that Ian Livingston's time in Government was shorter than a contract for one of BT's services you have to ask what friends they have?

Is it possible to fix BT?

Ofcom has started another review into how BT effects the UK telecoms market, so 10 years after the first review. At the same time the CMA are looking at it's plans to buy EE.

This regulatory overview gives a chance to review how BT operates in the UK and what could be done to improve things.  Since the Privatisation of British Telecom the market has failed to offer an effective competitor rather it has seen a race to the bottom.  

Consumers in the UK have been very poorly served when it comes to keep up with Continental rivals when it comes to Infrastructure.  Whilst the cable industry did attempt to build out an alternative network it failed to do so with a sustainable business model and so we are faced with the situation that more households are not pasted by Virgin Media than are. The provider of the last resort is thus BT and as such is highly regulated with an obligation to wholesale network access to rivals.

Thirty years ago Britain got its first mobile networks, one of those had access to enough rooftops to build infrastructure needed up until 2000 thanks to it's only property portfolio and captive business accounts.  The other was Vodafone, a small start up based at the end of the Thames Valley with a sleepy parent focused on the defence industry.  Yet because BT focused on doing things that impeded its rival rather than do what was needed they failed so sceptically that they were forced to divest the Mobile business.

When it comes to the Broadband business it has repeated the same mistakes, rather than invest in the Network so that it was the best possible it has played games with rivals seeking to do just enough to avoid sanction.  We thus find ourselves in the UK operating behind the curve when it comes to digital services because of slow speeds and over capacity.

The last review took Ofcom two years to complete and saw the creation of Openreach as an effective remedy. Hindsight has proved that the actions have not worked and BT rivals are now asking for the business to be spun off from it's parent in an effort to improve capital investment. Such a option will not solve the investment lag rather it will make it worse.

I saw recent analysis of the performance of BT shares over the last fifteen years which highlight that the Management had managed to offer a negative return of some 20+% one of the worse performance with the FTSE 100. Thus shareholder seem just as ineffectual as regulators to force the Executives to run the business.    

Thoughts on BT

So Yesterday we had the presentation of the BT results for the last year and the headline analysis can be read on the FT, BBC, Independent and Times amongst other sources.

What gets me is that Ian Livingstone has used accounting tricks to hide what the future looks like. Lookig at BT Retail the core revenue streams are ALL declining and yet the Division managed to increase its profit. Going forward if my own experience is common they will lose even more money, the retention costs for me staying on the BT network are more than the money I am paying them the poor user experience means that I have stopped using BT Vision on demand services.

The Cost Cutting plan is a recruitment freeze rather than intelligent restructuring of the Workforce. This is because of the fact that we are looking at the heavy unionisation of the Openreach division which could become a car crash similar to Global Services (Talk Talk and Tiscali merging will lower the number of truck roles for LLU). If the cost base in GS is wrong why has so little been written down on the Balance Sheet and why are we not seeing large scale redundancies in India of BT staff?

However the big issue I have with Livingstone is the lack of a Vision when it comes to the future. In the middle of the Digital Britain review would his predecessor have stayed quite or used the annual results as an opportunity to talk up high speed broadband? With BT needing to become a software company if the investment in 21CN is to be profitable what progress is being made and how will BT be at the centre of new services?

Could the emphasis on fixing the pension fund be because Livingstone and his Board what a nest to rival that of the former RBS Executives under Fred Godwin?