Italy, Ofcom and Brexit weigh heavily on BT quarterlies

The dominant UK operator faces significant challenges on many fronts, not helped by dodgy accounting, aggressive regulation and European uncertainty.

Having uncovered some highly creative accounting in its Italian business, BT had already appointed KPMG to investigate just WTF has been going on and they uncovered the greater-than-expected dodginess. BT’s auditors for the past few decades have been PwC and the FT reports that relationship might be over, which is understandable.

According to the report the book-cooking was aimed at making profitability look higher than it was – a not unusual practice when execs are incentivised on that metric. While many might be OK with booking deals early to hit quarterly or annual targets, it looks like BT Italy was getting into things like off-balance sheet loans and booking opex as capex. BT will be asking PwC why it didn’t spot that stuff during the auditing process.

BT’s quarterly report also made reference to its ongoing tussle with Ofcom, which finally showed some cojones on the matter of Openreach late last year. As a consequence of some adverse judgments regarding BT’s pricing of a range of B2B services has caused the company to write off an additional £79 million of regulatory risk in the quarter.

Despite Ofcom indicating it was passing the matter of Openreach independence over to Europe, BT’s comments indicate it is still in the last-chance saloon regarding making sufficient concessions to placate the UK regulator. “We continue to work with Ofcom to reach a voluntary settlement that is good for customers, shareholders, employees, pensioners and investment in the UK’s digital future,” said the BT report.

There was also reference to the Brexit process, including inevitable grizzling about currency fluctuations. “The weakening of sterling has continued to impact our financial results, causing volatility on revenue and cost but with minimal EBITDA impact,” said the report. “However, following the result of the EU referendum, there remains significant uncertainty around the nature of Britain’s future trading relationship with the EU and globally. We continue to monitor the longer term impact of the UK’s decision to exit the EU.”

BT CEO Gavin Patterson offered the following commentary: “The good progress we’re making across most of the business has unfortunately been overshadowed by the results of our investigation into our Italian operations and our outlook,” he said.

“We’ve undertaken extensive investigations into our Italian business, including an independent review by KPMG, and I am deeply disappointed with the unacceptable practices by some that we’ve found. This has no place at BT, and it undermines the good work we’re doing elsewhere in the Group. We are committed to ensuring the highest standards across the whole of BT.

“We face a more challenging outlook in the UK public sector and international corporate markets but we’ve seen record growth at EE, strong momentum in Consumer, and our highest ever fibre net connections in Openreach. Customer experience remains a top priority. EE is now answering 100 per cent of its customers’ calls in the UK and Ireland.

“In Openreach, missed appointments have halved year on year. We’ll continue to invest to ensure our service levels improve and that our customers see the benefit. “We are pushing ahead with reforms at Openreach, particularly on governance and customer service and continue to believe an agreement can be reached with Ofcom on its Digital Communications Review. We think these changes address Ofcom’s concerns and can form the basis for a fair, proportionate and sustainable settlement.”

We hope Patterson had a relaxing Christmas as it has been a pretty stressful start to the year for BT. All this in spite of being the dominant force in UK communications, but sometimes size and success bring unique problems of their own. With everything that’s been going on in Italy and the spectre of the EU getting involved in Openreach, BT might be tempted to explore a Brexit of its own.