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BT hands over £225m to ward off legal action over accounts scandal

BT has had to pay out £225m to avoid being dragged through the courts by EE’s old owners

Quarterly pre-tax profits at BT have dropped by 42% to £418m and revenues have remained roughly flat at £5.83bn, as the telecoms supplier struggles to move forward following a damaging book-keeping scandal at its Italian operation.

BT has now taken double digit hits to its pre-tax profits in three consecutive quarters and the accounting scandal has cost it over £570m. Partly in response to this, it has also embarked on a major restructuring programme that will see 4,000 jobs lost by 2019.

BT’s woes mounted in its latest set of quarterly numbers when it emerged that in the three months to the end of June 2017, it was forced to pay out a further £225m in warranty claims to EE’s previous owners Deutsche Telekom and Orange in order to avoid being taken to court.

Deutsche Telekom owns 12% of BT, and Orange 4% following BT’s acquisition of EE, and both telcos lost substantial sums when BT’s share price collapsed on the day news of the scandal was made public.

BT said the payment represented a “full and final settlement” in light of those issues, but CEO Gavin Patterson – who was made to sacrifice his annual bonus following the scandal – made no reference to the crisis in his formal statement, saying BT had delivered an “encouraging performance” and made “good progress in our key areas”.

“We will continue to simplify and streamline the business and rationalise our costs as demonstrated by our ongoing performance transformation programme,” said Patterson. “Our businesses are leaders in their core segments and as we drive the business forward I am confident in the outlook for our company.”

BT highlighted growth across its consumer broadband, mobile and TV businesses and improvement in customer service metrics as positive points, and laid out tentative plans to bid for more high-frequency spectrum to support EE’s future upgrade to 5G.

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BT also announced a number of organisational changes across its consumer-facing businesses that it hopes will help simplify its operating model.

From 1 September 2017, BT will fold EE – which up to now has been run as a sixth standalone business unit – into an enhanced BT Consumer business that will incorporate its other consumer brands (BT and Plusnet) and span fixed and mobile networks, consumer products and services, and content.

This unit will be led by EE CEO Marc Allera following the exit of current leader John Petter, who is to step down to explore other opportunities.

Also on the way out is chief strategy officer Sean Williams, who was instrumental in helping secure regulatory approval for the purchase of EE, while Cathryn Ross, who is currently chief executive of water supplier regulator Ofwat, will take up the role of director of regulatory affairs at BT from January 2018.

“Together our senior management team will ensure that BT realises its full potential: connecting customers in the UK and beyond to next-generation digital communications services, content and networks,” said Patterson.

Absorption of EE “makes sense”

Paolo Pescatore, CCS Insight director of multiplay and media, said the absorption of EE into a wider consumer business made perfect sense.

Pescatore said he expected the EE brand to be retained for now, but the move to integrate the financials and lines of business meant it was now much more likely that BT would eventually move to a single brand.

“Marc Allera is a great appointment for the new entity,” said Pescatore. “Since becoming CEO of EE, he has delivered strong results every quarter, and his strive for simplicity and a customer friendly approach will put the new entity in good stead.”

“As BT emerges from a turbulent 12 months, a recent shake-up of personnel seeks to bring stability to the under-pressure organisation.”

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