Anyone looking at BT’s share price last week – languishing at a quarter of its 2016 high – might have thought that the job for the telecoms company’s new leader would be a straightforward turnaround. Yet the message from Allison Kirkby as she prepares to move from the boardroom to the executive suite was clear: she is a continuity candidate.
“I’m fully supportive of our strategy and am excited about leading it into its next phase of development,” she said in a statement to the stock market on Monday morning.
Kirkby – who has spent more than a decade leading Scandinavian telecoms companies and has been a non-executive director of BT since 2019 – will take over from Philip Jansen in January, and is likely to be seen as a “safe pair of hands” to keep going with the more streamlined vision he laid out in May, according to Paolo Pescatore, a telecoms analyst. That vision will include cutting as many as 55,000 jobs by 2030.
Jansen “came in and had a really tough ask and refocused the business and put it back on course”, said Pescatore. He accelerated the rollout of faster optical fibre internet connections, merged two underperforming divisions in an effort to cut costs, and agreed a price to sell broadband access to other companies.
However, Jansen’s actions have not been rewarded with a share price gain. The company’s valuation is languishing at a level only seen during the financial crisis of 2008 followed by the pandemic lockdowns of 2020.
While some analysts disagree over the prospects for a revival, they agree that a big weight around the neck of the new BT chief executive will be its mammoth pension scheme.
BT’s pension liabilities are worth £40bn, more than three times the £12bn value of its shares. Older, more generous pensions leave BT exposed to inflationary cost increases. The scale of the pension scheme also limits BT’s options. Separating out the Openreach broadband infrastructure division into another company would probably “require an initial payment of billions of pounds into the pension scheme” to satisfy previous commitments, according to analysts at Berenberg, an investment bank.
“You aren’t just managing the business,” said Pescatore. Add to that the pension fund, the relationship with the Communication Workers Union, the government and regulators – not to mention the presence of the billionaire French telecoms investor Patrick Drahi as its largest shareholder.
That should not distract from the problems facing BT’s fibre broadband business, said John Karidis, a telecoms analyst at Numis, an investment bank. He said BT faces a “triple threat” from alternative network operators, which have in recent years accelerated efforts to compete with BT on installing fibre internet connections. Firms such as CityFibre and the London-focused Hyperoptic and Community Fibre are eating into Openreach’s revenues and can charge lower prices – both of which make it more likely BT will have to pay more to its pension scheme.
“Honestly I can’t see what the solution to this is,” said Karidis, who believes investors should sell the company’s shares. Those alternative providers – known in the industry as “altnets” – are “growing and becoming a bigger threat, not a lesser threat”, he said.
Kirkby will have to navigate that competition while carrying out the delicate balancing act between regulators and politicians and customers balking at paying above-inflation bill increases during a cost of living crisis. Keeping everybody happy will be a tough gig.
