Businessweek Archives

What A Time To Take Over At British Telecom (Int'l Edition)


International -- Int'l Business: BRITAIN

WHAT A TIME TO TAKE OVER AT BRITISH TELECOM (int'l edition)

Management upheaval, aggressive regulators: Peter Bonfield faces a "bruising job"

In late December, a private ceremony took place at Fujitsu Ltd.'s headquarters in Tokyo. It was in honor of Peter L. Bonfield, the outgoing chief executive of ICL PLC, a $4.5 billion British computer company that Fujitsu acquired in 1991. Solemnly, Fujitsu Chairman Takuma Yamamoto presented the 51-year-old Briton with a sword and helmet, explaining that Bonfield-san would need all the strength of a samurai warrior in his new job.

That's for sure. As the new CEO of British Telecommunications PLC, Bonfield took over on Jan. 2 after one of the rockiest years in BT's history. For the $21 billion telecom company, 1995 was marked by a plunging stock price and a management shakeup. Iain D.T. Vallance, who previously doubled as both chairman and CEO, gave up the top operational job at the end of the year. And his No.2, Managing Director Michael L. Hepher, resigned.

The turmoil was partly linked to BT's escalating battle with the government's Office of Telecommunications. In a bid to reduce BT's monopoly, regulators want to slash the company's return on capital from around 15% to as low as 8%. The uncertainty has sent the company's shares plunging nearly 11% since last year's high, to $5.78 a share (table).

TWO PAYCHECKS. The upheaval threatens to undermine BT's four-year-old push to position itself to compete globally against AT&T. Although 98% of BT's revenues and nearly all of its estimated $4 billion in 1996 pretax profits will come from Britain, the company has been investing heavily in overseas markets to prepare to take on its U.S. rival. Now the regulators' proposals could halve BT's pretax profits over the next five years, analysts estimate, draining cash needed for investment.

So Bonfield faces a battle on two fronts. While tangling with the regulators and other problems at home, he must continue to build international alliances and invest in new technologies. Bonfield admits there's a risk of "getting overwhelmed" with the company's domestic concerns. And he acknowledges that he could be forced to make difficult trade-offs between maintaining BT's dividend or investing in new markets. Warns Paul G. Bossonet, who recently retired as BT's deputy chairman: "It's a bruising job."

Still, Bonfield comes to his new post with an impressive track record from his years at ICL. Trained as an engineer, he was working as global marketing director at the struggling company in the early 1980s when he helped push a deal with Fujitsu to form a joint venture to make chips for mainframe computers. The relationship strengthened after Bonfield became CEO in 1984, and Fujitsu went on to buy 80% of ICL in 1991. By then, it was the only major European computer company turning a profit, largely because of Bonfield's skill at cutting costs and boosting quality.

When BT approached Fujitsu about hiring away Bonfield in early 1995, the Japanese company refused to let him go until ICL completed a planned stock offering on the London Stock Exchange. Although that offering has been delayed, Fujitsu finally allowed Bonfield to join BT as long as he also continued to serve as ICL's chairman. It's a lucrative deal. On top of his undisclosed compensation at ICL, Bonfield will earn a salary of $732,000 a year from BT.

Now in the hot seat, Bonfield aims to start tackling BT's problems by softening its criticisms of the government's Office of Telecommunications. Under Vallance, the company took an antagonistic stance toward the agency, former BT executives say. Indeed, insiders say that approach contributed to clashes between Vallance and Hepher. "The tension was extremely thick," says one former BT exec. Bonfield, who will take over responsibility for the regulatory relationship, hopes to keep matters from degenerating further. "There'll be no more personality criticisms," he vows.

At the same time, Bonfield must continue the cost-cutting launched by Hepher. During his four years as managing director, Hepher reduced BT's head count by nearly 40%, to 130,000 workers, with little industrial unrest. BT's goal is to reach a workforce of about 100,000, bringing productivity measures such as lines per employee closer to the level of the U.S. Baby Bells.

But slashing costs can only go so far. Bonfield is also looking for new ways to compete with the 150 rivals that have set up shop since deregulation in 1991. With new sources such as the Internet threatening to force down user prices for BT's network, Bonfield plans to focus on value-added services that command higher fees. The company is in the midst of a 2,500-person trial of interactive television to see whether customers will pay for home shopping and video-on- demand. It has also launched an aggressive advertising campaign urging people to spend more time on the phone.

Meanwhile, international challenges loom. Although BT has built a globe-circling network of alliances to sell telecom services to corporate customers, it's still hunting for big partners in Japan and France. And in North America, where it struck a $5.3 billion deal with MCI Communications Corp. in 1993, there has been continuing bickering over customers. Conceding that domestic problems may have distracted management, Bonfield hopes to raise the profile of BT's international strategy by communicating it better throughout the company.

Actions speak louder than words. In December, even before he moved into his office overlooking St. Paul's Cathedral, Bonfield paid a visit to Nippon Telegraph & Telephone President Masashi Kojima and to Japan's Ministry of Posts & Telecommunications. The subject: the possible deregulation of Japan's telecom market. Bonfield says his goal is to become "partner of choice for NTT."

CANYON SNOWSTORM. That's going to be tough, since AT&T has signed up NTT as part of its WorldPartners' alliance. For now, BT has teamed up with a small international carrier, International Telecom Japan Inc. Bonfield speaks little Japanese, but his knowledge of Japanese business culture could draw BT closer to NTT, dulling its American rival's edge. Admits AT&T Japan's CEO, Louis C. Golm: "BT is a very serious competitor."

In coming months, Bonfield says he'll go "up the poles and down the holes" in a whirlwind tour of BT's far-flung operations. He's not short on energy or stamina. His wife of 27 years, Josephine, recalls a snowstorm nearly 15 years ago, when her husband was working for Texas Instruments Inc. Overnight, several feet of snow fell in the West Texas canyon where they lived. Most of the Bonfields' neighbors took one look outside and decided to sleep in. Not Bonfield. He rounded up other TI employees in the neighborhood to dig their way out. By 3 p.m., they made it to the office. "You could call it discipline or craziness, I'm not quite sure," she says.

With that kind of determination, Bonfield is bound to leave his mark on BT.By Julia Flynn in London, with Mark Lewyn in Washington, Gail Edmondson in Paris, and bureau reportsReturn to top


Hollywood Goes YouTube
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus