Livingston determined to make BT numbers add up

Published on Saturday 12 April 2008 15:07

IAN Livingston sat in his London head office in the shadow of St Paul's Cathedral and laughed off strong and persistent rumour-mill predictions that he was destined for the top job at BT. But that was shortly before Christmas, and a business quarter is a long time in the commercial world.

Back then a noticeable glint in the eye of this wiry and ambitious Scot left no illusions about a succession plan being well under way at the UK's largest fixed-line telco. Last week it was announced that Livingston will replace BT Group chief executive Dutchman Ben Verwaayen from June 1, taking on one of the biggest and most demanding jobs in British industry.

Livingston's first task, according to deepening anxieties expressed on shareholder blogs, will be to arrest a declining share price and fend off suitors interested in the company. John Clarke, a technology and telecoms analyst at Bell Lawrie White, agrees. He says the market was "relieved" by the appointment of Livingston, "who was obviously earmarked for succession rather than an outsider being brought in".

However, Clarke adds: "Takeover fears are not daft by any means." Such a move could happen "more in the medium rather than short term", and uncertainties caused by the current credit crisis and IMF fears that a global recession is now a distinct possibility are not helping matters.

On the bright side, news of Livingston's elevation last week took BT briefly to the top of the FTSE 100 leaderboard, but no one will have to tell him of the complex task that lies before him.

Livingston was group finance director and then head of retail for six years and has been instrumental, along with his boss who joined BT around the same time, in transforming an old British Telecom telephone monopoly – struggling under the weight of billions in debt – into a modern telco.

He is endowed with a reputation as an easygoing executive, though if one insider's view is anything to go by, BT should expect more "pain and grief as he takes a hard look at the numbers" to lift its game and appease shareholders and investors alike.

Livingston's predecessor cut about 5,000 jobs a year to arrest a slump in its fixed-line business and broadband sales. To take the company to the next level, Livingston will have to achieve a similar balancing act based on significantly improving the business both at home and overseas.

At the same time he has to arrest that falling share price, down from last summer's high of 336p to around 235p now. He must also significantly reduce a defined benefit pensions scheme deficit of 293m, with liabilities totalling 38.6bn as of March 2007, the largest in the UK.

The immensity of Livingston's new role is hammered home on realising that as head of retail he controlled an 8.5bn budget and was responsible for selling phone and data services to small firms and consumers.

Soon he will take charge of a major communications business with a market capitalisation of more than 18bn. Along with Britain, BT operates in 169 countries, although its home base accounts for more than four-fifths of total revenues.

They are generated by a group organised under four business segments – BT Retail, BT Wholesale, BT Global Services and Openreach. In Livingston's favour is that at BT's retail 'coalface' he became highly skilled at taking on rivals such as British Sky Broadcasting (BSkyB) and Carphone Warehouse, as they roll out their own networks and reduce BT's income from infrastructure rentals.

BT is in the middle of a key project called 21st Century Network, replacing old telecommunications infrastructure with modern technology to handle the vast and ever-increasing amounts of data traffic in the UK.

Better known as 21CN, it is also aimed at driving major cost reductions of around 1bn, as BT rebuilds 35% of the UK's core network by overhauling fixed-line copper wires with optical fibre to increase broadband speeds. BT aims for completion by 2011.

However, what has become a running sore for Livingston on the UK front is the question of internet speeds, and as Britain's largest broadband supplier the telco will continue in its ongoing single cable networking plan to integrate net, phone and video operations.

Livingston is expected to intensify his call for a greater responsibility to be assumed by the Government, which has since last September been mulling over the way broadband is rolled out.

He remains passionate in his effort to accelerate both its deployment and broadband speeds, to catch up with leaders in Scandinavian and the Irish 'Celtic Tiger' economies. When I interviewed him last winter, he extended his argument to strongly urge the SNP-led Scottish Government to connect more with BT Scotland to speed up broadband uptake.

Bell Lawrie White's Clarke says that with 21CN there is good and bad news. While investors are correct in their fears that BT could be burdened by the Government to the tune of billions if this happens and it is made solely responsible for broadband rollout, this would likely make it less attractive to takeover bidders.

However, if as expected, BT starts to get a return from the networking project and becomes more adept at supplying portable device services to a highly mobile-conscious marketplace, then this would make it more attractive to a would-be buyer. "A no-win situation really," he claims.

On the international scene, BT Global Services presents its own problems for Livingston as the company struggles to increase profitability from this multinational service.

By 2010 the division must hit a target of a 15% profit margin at the earnings level before interest, tax, depreciation and amortisation. It reached almost 11% for the three months to December 31 last year, after no improvements in margins in the previous two quarters.

Next month Verwaayen and Livingston will get together for the chief executive's swan song, when BT releases its annual results to March 31. Analysts hope for better figures than last time around, despite BT running into difficulties last November with its second-quarter results and a share price dropping almost 30%.

It is generally agreed by analysts and investors that during his tenure Verwaayen laid the ground for BT to attract eye-catching international contracts. It is communications service provider for the London Olympics in 2012, and host to Project Turquoise, a trading platform facility set up by nine large European investment banks.

At the age of 32, and while at retail chain Dixons, Livingston became the youngest ever finance director of a FTSE 100 company. This followed roles with 3i Group and Bank of America International. He was also a non-executive director of Ladbrokes and director of Freeserve from its inception.

Now, at 43, he is one of the youngest ever group chief executives of a UK telco. One source close to the company said Livingston will need all that experience to emulate Verwaayen's "open-necked shirt pragmatic stance" to continue BT's transformation, improve revenues and arrest its share price. And keep would-be suitors at bay.