Patrick Zimmer

Bt Transition From Public To Private Sector

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BRITISH TELECOMMUNCATIONS

The transformation from public to private sector organisation

Introduction

BT has undergone the transformation from a state-run monopoly to a competitive private sector corporation. This has involved a great deal of restructuring in terms of organisational structure and business objectives, which to some extent has been successful.

The early 1980â??s saw the process of privatising BT and introducing a second telecommunications operator, Mercury, with access rights to the BT network. A regulatory body, OFTEL was set up to ensure that BT did not abuse its dominant market status.

It was accepted that BTâ??s management strategy and employee attitude was not suited to a competitive market environment.
The problem of staff motivation was dealt with by introducing an employee share ownership scheme so employees benefited from increasing BTâ??s profitability.
In 1991, the Sovereign programme was initialised to deal with the major organisational restructuring required to make BT more profit orientated. The number of levels of management was halved to make inter-communication more responsive. In the next 5 years BT was to reduce its total workforce by 56% with the aid of large redundancy payments. A leadership program was made part of the Sovereign project to deal with the changes required in staff attitude and behaviour.

BTâ??s initial response to privatisation was to concentrate on customer service related issues with the Total Quality Management program. Previously, poor customer services had been a problem for BT and the focus on customer-orientated improvements was planned to increase BTâ??s competitive advantage.

An OFTEL requirement of BT was the maintenance of a public telephone service. Throughout the 1980â??s BT concentrated its improving and expanding the public telephone network due to increasing competition in the payphone market. The focus on quality of service in this area changed a notorious loss making area for BT into a profitable service while improving the public image of BT. The predicted growth of mobile telecommunications through the 1990â??s led to the inevitable decrease in public telephone usage however, making the effort put into the payphone network seem futile.

BT established itself in the field of mobile telecommunications early with a majority share in Cellnet, formed 1983. A mobile telecommunications service was launched in 1985 and by 1995 Cellnet had 2.5M customers, a 43% market share. Over the next few years BT saw a huge increase in competition in this market from mobile network operators such as the worlds largest mobile operator, Vodaphone and later Mercuryâ??s One2One and Hutchinson Telecomâ??s Orange. Cellnet has consistently maintained a proportionate market share however and greatly benefited from the mobile phone explosion of the late 90â??s. A major investment was made into the purchase of a third generation mobile operator licence last year, which created a £30 Bn debt for BT but may safeguard the future of Cellnet.

In the early 1990â??s the combination of tougher OFTEL regulations, increasing competition and recession in the UK made BT realise that development in foreign markets would be required to maintain profitability. This expansion started in 1989 with BT investing in a 22% share in McCaw Cellular and forming an alliance with Motorola in the US. Many schemes were planned for joint ventures with other international operators. Syncordia was a scheme involving several major telecommunications players, which despite much organisation did not come together. Concert was a joint venture with MCI involving extensive service network and organisational integration. The project attracted a lot of customer backing but MCI pulled out due to a corporate takeover by WorldCom in 1997. A lot of investment had gone into the Concert scheme so BT continued to seek the interest of other major operators. One of the strongest global alliances was made with AT&T in 1998. The financial support of AT&T enabled the launch of Concert in 1999 with both companies servicing their top customers.

A programme called Breakout, 1994-5, was aimed at integrating the efforts of the previous programmes and re-engineering BTâ??s business processes. An external consultant was brought in and used in conjunction with employee surveys to identify areas requiring change. Employees were taken from all over the UK to plan new strategies and test them in pilot schemes. Despite the fact that one profitable pilot scheme became the size of a fair business, the Breakout project was generally regarded as lacking substantial result. The need for a programme to bring together the effort of previous schemes shows a lack of focus on results and indicated that the required restucturing was attempted in over ambitious steps.

Between 1984 and 1995 BT spent £20Bn on network improvements concentrating primarily on the digitisation of trunk transmission systems. In the early 1990â??s foreign Cable companies began showing an interest in the UK market and the installation of local area cable networks started to grow. The ability to provide entertainment as well as telephone services created a competitive advantage unavailable to BT due to an OFTEL restriction on Multimedia service provision.

The beginning of this year, 2001 the multimedia broadcasting restriction imposed on BT expires. A new department has been created to develop suitable services but without the experience of other competitors in this market, BT must work hard to catch up.

Strengths, Weaknesses, Opportunities and Threats

Points are in chronological order

Strengths

1980â??s

National operator status and image
The previous public service status of BT makes customers feel as if they are supporting a national institution. The national operator has developed a widely known and long established reputation, which is generally associated with a successful and reliable company.

Well established infrastructure
Telecommunications network and property requirements of BT are met, so no large investment is needed. BT has an advantage in terms of spatial location throughout the UK.

UK industry experience and contacts
Having been established in the UK for some time, BT is fully integrated with the necessary industries. Working practices are all in place to deal with industries and bodies that interact with BT eg. Corporate networks, Local authorities. Contacts with suppliers and subcontractors exist. Long-term relationships exist between BT and other related industries in the UK.

Extensive R&D facilities
BT has existing facilities to research and develop into new areas. In the past R&D has been a strong BT department.

1990+

Established reputation for Quality of Service
The focus on customer satisfaction and reducing network faults has created a good image. The ISO standard for quality was consequently award, contributing to BTâ??s reputation.

Reduced organisational structure and staff numbers
The simplification of management structure makes the organisation more responsive. Reduced staff levels increase efficiency and hence profitability.

Diverse range of alliances formed
BT has cooperated with many operators and customers promoting BTâ??s status and power as a major player. Expanding into the international fixed and mobile telecommunications market makes the future more secure.

Weaknesses

1980â??s

Non-competitive attitude of staff and organisational structure
Public service working structure and practices are geared towards service provision without regard to the profit-orientated efficiency required.

Inexperience at marketing
Competitive marketing is a new concept, which BT are unequipped to deal with. The organisations financial structure is not profit orientated.

Reductive restructuring required
An inefficiently large and complex organisational structure has built up within BT. This is more expensive to adapt and reduce than the conventional restructuring involved with a growing company.

1990+

Radical organisational restructuring schemes
Organisational changes are made to take place in large steps causing confusion and loss of direction. The restructuring is done at a high level without catering for the specific requirements regarding departments or locations.
Lost payphone investment
The drop in public phone use with the mobile explosion left all investment and
effort put into the network as sunken costs.
Failure of many joint schemes
Plans for ventures involving other operators such as Syncordia and Concert have all been subject to finalisation problems. This indicates that BT could improve negotiating skills or be more flexible and make more concessions.

Opportunities

1980â??s

Large existing customer base
With all UK telephone owners already connected to BT the focus is on the less demanding task of keeping customers rather than attracting them

Expansion of the mobile telecommunications market
With the imminent mobile communication explosion the market will shift from fixed to mobile networks.

Increase in demand for new telephony and internet services
New services such as fax advertising and special rate phone numbers introduce diversity to the use of the telecommunications network. The Internet evolves as the ultimate communication channel and safeguards the future of the fixed network.

Globalise service provision
Customer demand for global telecommunications mean that international alliances with other operators are profitable and give a means to expand.

1990+

Internet explosion
The increase in network usage from the Internet can be very profitable by refusing to introduce a flat rate charge for Internet calls.

Internet windfall to benefit mobile market
The business opportunities and increased network usage associated with the Internet will move towards mobile technology.

January 2001 multimedia broadcast restriction expires
BT has the opportunity to diversify with multimedia service provision.

Possession of a third generation mobile operator licence
The mobile Internet market will follow the fixed Internet market in demand for increasing bandwidth and range of services.

Threats

1980â??s

OFTEL pricing restrictions
Competitors are free to undercut BTâ??s prices so BT cannot gain from the full benefits of becoming a private corporation. Later as restrictions are relaxed this means that BT has no experience in competitive pricing and the associated marketing strategies.

Trunk network digitisation
Concentrating improvements on the trunk network means that all competitors benefit since the trunk systems are shared most. The high capacity trunk network designed to minimise the need for future improvements gives competitors the ability to supply high bandwidth multimedia services.

BT multimedia service restrictions
Competitors can gain an early foothold in the area of multimedia service provision. Installation of competitorâ??s local cable networks means customers are offered more bandwidth and hence better Quality of service at the same prices as BT.

1990+

Domination of the multimedia services market by rivals
Most competitors of BT have focussed on marketing the services unavailable to BT. These rivals have had the time to establish UK market experience and a considerable customer base.
BTâ??s debt is costly and bad publicity
The interest on the £30 Bn mobile licence debt is reducing profits and share value. The BT Corporation is to reducing its assets by selling property. This is a bad image for an organisation previously without debt.

Conclusions

The transition to a private corporation, BT was slow to restructure and focused many efforts in the wrong direction. Early expansion into mobile telecommunications was a long-term beneficial move. Failing to install local high bandwidth networks in preparation for the expiry of the multimedia broadcast restriction was an opportunity lost. The large mobile licence debt affects BT as a whole while Cellnet is becoming a separate entity. Overall, BT has maintained a consistently high service standard and some of the lowest rates in Europe, expanded appropriately and performed adequately as a company however.