Issue 253 of SOCIALIST REVIEW Published June 2001 Copyright © Socialist Review
The telecom fiasco ranks high in the league of Great Privatisation Disasters says The Walrus
Nobody should be much taken in by the eerie silence which has accompanied the collapse of BT in most of the press. Apart from a little bit of ritual hand-wringing over the fabulous heap of baksheesh amassed by BT's chief executive, Sir Peter Bonfield--apparently in recognition of his utter incompetence--the true scale of the calamity has barely been touched upon. In the skyrocketing pantheon of Great Privatisation Disasters, though, BT's contribution is quite monumental.
It does seem rather odd that not many newspapers seemed to want to investigate how it could come about that a company which, until fairly recently, was making something like a million pounds a minute can suddenly discover a £30 billion black hole in its accounts. Between 1999 and 2000 BT's debt-equity ratio (the amount it had to the amount it owed) had soared from 6.3 percent to 192 percent, net tangible assets had slumped from £14.1 billion to £1.1 billion and, in effect, the company was technically insolvent.
That things had come to such a pretty pass might be of more than passing interest, you might think, for a company which not only started Thatcher's 'historic experiment in popular capitalism' in 1984, but led the way for deregulation of all the other utilities. So that might explain why the Tories were happy to steer well clear. For New Labour, the incentives to steer the cameras well away from the unsightly wreckage were even greater. In the last few years BT has emerged as the archetypal New Labour business--it would provide the infrastructure for the 'knowledge-based' economy.
Now it looks as though all this might well be heading off down the Swanee, there has been barely a peep out of Millbank. And by and large the press have appeared reticent about the fact that two of the three key individuals who have presided over this calamity will be staying on and both are up to their eyeballs in the New Labour Project as well as turning out to be a pair of complete and utter donkeys.
The aforementioned Bonfield--who was paid £1,379,000 in 1999 and £1,278,000 in the year 2000--appears to have been put on a retainer purely to ensure that he can direct the new management to where all the bodies are buried. For this he stands to earn an 'incentive' of another £2.9 million in the next 12 months. Clearly the ideal candidate, Bonfield also serves as a member of the government's competitiveness council and sits on the board of Zeneca, the drugs company which specialises in the development of GM foods.
Donkey Two is Lord Marshall, formerly of British Airways and the CBI, and currently BT's deputy chairman.Not only is Marshall undisputed Numero Uno when it comes to a place on any old DTI or Treasury task force, working party, commission, quango, policy action team or forum. He also manages to squeeze in time as chairman of another seven companies and as director, member, vice-president or president of another dozen or so. This way, presumably, you pick up a much wider range of incompetencies.
Between them, Bonfield, Marshall and the already ousted chairman, Vallance, have managed to bring about a really astounding turnaround in the fortunes of BT, from industry giant to utter shambles, in less than a decade. But it seems unlikely that the new lot wheeled in to take over the reins will be much different. The new chairman, Christopher Bland, was the man who consistently backed John Birt's handiwork at the BBC.
In the eyes of the City, the main misfortune to have befallen BT is not primarily privatisation--the very idea! One minute it will be executive incompetence, the next lack of clarity on strategic thinking, before moving on to over-reliance on new-generation WAP technology and/or slowness to react to change. Nothing at all to do with viperous competition or the anarchy of the market.
In fact, the underlying problems faced by BT have been much the same as those which have afflicted other former nationalised industries, post-privatisation. One of the main justifications for carving up these industries put forward by the Thatcher crew was not only that they were grossly inefficient. They were also monopolistic and needed to be opened up to the invigorating blasts of competition. As elsewhere, the privatisation strategy seemed to be working spectacularly well in the initial stages. In truth, it could hardly have done otherwise. The Tories had been very careful in choosing the telecom operations of BT as their flagship privatisation initiative because at that time it was already highly profitable and an almost surefire moneyspinner. Another big plus was that the break-up made it much easier to make roughly half the workforce redundant in no time at all.
In 1996 Bonfield was drafted in from ICL with the idea of accelerating this process. He brought with him the concept of trading units--intended to introduce an internal market within BT, just like the NHS. But by this time it was already clear that, unless BT came to terms with what was going on in the rest of the world, it would be trampled underfoot by other national and international giants.
The one thing all of BT's main competitors had in common was that they were absolutely gigantic and determinedly monopolistic. Hence the procession of ill-fated attempts to link up with the likes of MCI and more recently AT&T. BT was being pulled in two opposing directions at the same time but so long as the share price kept going up nobody paid all that much attention.
And hardly surprising, really, for up until the second half of last year the industry and City wisdom was that a gilt-edged stock like BT could inconceivably do much wrong, so long as the worldwide telecom boom continued and BT still managed to maintain its dominant role in the domestic market. But the worldwide telecom boom has not continued and BT's apparent dominance of the home market was bound eventually to unravel, the more its rivals were granted access to the national telephone infrastructure.
Virtually all of BT's remaining debt after the rights issue and major disposals will be put into a new division of the company, to be called--apparently without a whiff of irony--Future BT. Much less confident of their future will be the membership of the Communication Workers Union (CWU) who work for BT. Hopefully, the CWU leadership is serious when it says it is prepared to call ballots for industrial action unless it receives written assurances on job security and terms and conditions.