Struggles at BT Global Services prompts board reshuffle

3 Nov 2008

BT has announced board changes after the departure of Global Services CEO Francois Barrault following disappointing EBITDA (earnings before interest, taxes, depreciation and amortisation) performance.

Barrault joined BT in 2004 and became head of BT Global Services and a BT Group member in 2007. Barrault is to be replaced by Hanif Lalani, currently group finance director at BT.

During Barrault’s time at the helm of Global Services, the group has recorded stellar revenue performance and will report 15pc year-on-year growth.

Future Human

However, it seems that this performance has been tarnished by what BT Group CEO Ian Livingstone described as disappointing EBITDA in the range of 7-8pc.

According to telecoms analyst Ovum, BT Global Services has been chasing a well-publicised EBITDA target north of 15pc, and until recently, the business was bullish that this target would be met.

The company claims that cost-efficiency savings have been slow to come through, and margins have continued to be eroded at the larger end of the managed services deals.

According to Richard Mahony, practice leader at Ovum, items that the business targeted for cost savings are 10pc workforce reduction in the back office and global sourcing efficiencies (around £50m sterling), along with other process efficiencies.

“But we have not been told which cost savings are proving troublesome. However, the business is confident it can reach an EBITDA of 16pc once cost savings are brought back on track.”

Mahony said that BT puts much of the poor margin performance down to a lack of standardisation in its business.

“Such standardisation is a challenge for all telcos, and is a keystone in providers’ next-generation network plans. BT Global Services is driving standardisation, with a new raft of services and network features through its service-oriented infrastructure (SOI),” Mahony pointed out.

He said perhaps the most worrisome aspect of BT Global Services’ business is thinning margins from multinational managed services.

“BT Global Services’ own analysis points out that margins for the sizable multinational deals in the top end of the market are around half those in the mid-market.”

Mahony said that accelerated cost savings are needed by BT Global Services, and that its software-oriented infrastructure business could provide it with more repeatable solutions.

“However, we would expect BT Global Services to partner with more cloud-based services as it looks to accelerate this desire for standardisation in its business. Also, expect a revitalised approach to the mid-market as BT chases after fatter margins in this market,” Mahony said.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years