BT’s Radical Overhaul May Be Anything But

(Bloomberg Opinion) -- BT Group Plc CEO Gavin Patterson is poised to go out on a high note, with the U.K.’s former national carrier reporting better-than-expected quarterly earnings on Thursday. His successor Philip Jansen’s freedom of action may be more limited when he takes over at the end of January.

It’s becoming clear that the role BT Chairman Jan du Plessis wants Jansen to play is quite limited. He will have to focus on operations and costs. As much as du Plessis has paid lip service to letting Jansen be “radical” in transforming BT, as he told the Financial Times in an interview last week, he also seems intent on tying Jansen’s hands.

On Thursday, BT executives reiterated their chairman’s determination to hold on to Openreach, its fixed network business, in the face of pressure from activist David Einhorn’s Greenlight Capital LLC to divest the division. The carrier’s board has meanwhile stuck with plans to keep the dividend stable over the next three years.

With pension payments set to surge to 1.3 billion pounds ($1.7 billion) in 2020, it will be hard to fund that dividend stability based on current free cash flow predictions, according to Bloomberg Intelligence analyst Matthew Bloxham. That will get even harder if Jansen wants to accelerate investment in the fiber network to secure its competitive position.

The message from du Plessis is implicit: if Jansen needs more cash, he will have to trim costs further. Patterson has already started cutting 13,000 administrative jobs, while pledging to add 6,000 front-line workers.

On the one hand, Jansen might be relieved that those measures are already in place. It makes it easier to set off on a healthy footing with employees, since responsibility for the cuts can be placed squarely at Patterson’s feet. But Jansen will surely want to do more than simply execute someone else’s plan.

Jansen must be aware of the conditions under which he’s joining the company, and it will be a relief that the business is getting healthier. But it looks strange for du Plessis to claim that Jansen has free rein for a radical overhaul when so many decisions have already been taken.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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