BT's New CEO Has Work to Do

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Livingston also has concerns about the economic structure of rules requiring BT to share its network with rivals. British regulators forced the company to split off part of its business—the network, or "wholesale" component—to ensure that rivals could rent access on the network on equal terms. At the time, BT was guaranteed certain rates of return by regulators to compensate it for having built the network and continuing to operate it. But BT's earnings from that business are less than what was promised, and so it is pushing Ofcom to come up with ways to fix the problem.

BT Vision Needs Customers

No matter what regulators decide, BT will have to upgrade its network if it aims to succeed in home entertainment against satellite, cable, and free over-the-air digital TV. It's already behind many European counterparts. While France Telecom (FTE.PA) and Telefónica (TEF) have offered TV services for years, BT began its own offering only 18 months ago. And while other telcos offer Internet TV, BT's service, called BT Vision, is a hybrid that uses a combination of DSL and digital terrestrial broadcasting.

The company is aiming to attract 2 million customers in three years but so far has signed up only about 250,000. Analysts characterize the customer response as lukewarm and say BT Vision risks being a niche service that will have to fight to secure appealing content. The biggest problem is fierce competition: Although cable TV is fairly weak in Britain, News Corp.'s BSkyB (BSY.L) satellite service is very strong, and the country also has one of the world's most successful rollouts of free over-the-air digital TV. Analysts say entertainment is a natural area for BT, but they're not sure the company can win that game.

Another area Livingston says he is counting on for growth is global IT services, but even that's not a sure bet. Almost $15.8 billion of the company's income comes from global services—essentially connectivity between offices for corporate customers such as Thomson Reuters (TRI), Unilever (UN), and the National Health Service. The division has had great success in winning business, "But we don't know how profitable it will be," says Dresdner Kleiner's Davies.

Strategy Needs Updating

Meanwhile, the revenues of BT's wholesale division, which sells raw telecom access to companies and other service providers, have been hit as well. Rival broadband providers are installing their own technology in exchanges instead of leasing wholesale lines from BT. And despite lots of fanfare about BT's snazzy new 21st century backbone network, known as 21CN, which replaces lots of its old infrastructure with a single core to cut cost and complexity, this development isn't generating revenue.

That is why industry analysts say they believe BT's strategy needs updating. "The strategy to defend traditional services, grow the new wave, and transform the business through 21CN and IT remains valid, but is now well-worn," says Mike Cansfield, an analyst at tech consultancy Ovum (INF.L), in a research note. "We would like to see its strategy expressed more in terms of customers, services (not products), and customer service."

Livingston says he intends to do just that. He regards improving customer service as his greatest challenge. "It is a hugely important differentiator and cost driver. If we can do this well, we can save hundreds of millions of pounds," he says.

Moving Fast Is Top Priority

Even so, Livingston bristles at the idea of being typecast as a chartered accountant. He trained as one and worked at Arthur Andersen in the early days of his career, but went on to do other things—working at venture capital firm 3i (III.L), Bank of America (BAC), and at the Dixons Group (DSGI.L) retail chain, where he was group finance director and later was recruited to launch an Internet company called Freeserve, which was floated a year later and is now part of France Telecom's Orange. He joined BT as group finance director six years ago but switched jobs three years later to head up its retail division. Under his leadership, the retail division went from double-digit declines in annual profits to double-digit growth, with annual earnings around £1.5 billion ($3 billion).

Livingston says he relishes the role of salesman and puts a great deal of emphasis on innovation. The company is tapping ideas from startups as far away as India and Israel. Working with external sources of innovation will help BT become more agile, he says. And that's one of his top priorities as the company's new chief executive. "I want to move more speedily," he says. "Making this a truly more agile organization is far more important to me than cost cutting."

Schenker is a BusinessWeek correspondent in Paris.