BT Stumbles with Leading Business IT Unit

Few details-- aside from an apparent cost issue-- yet are available about why BT (News - Alert) Group's Global Services division is being forced to take a $475.4 million write-off charge. But BT in October 2008, had warned that a combination of rapid growth of both revenue and costs were going to be an issue in the Global Services division, even though other BT operations are doing fine.

 

As BT is reviewing "certain major contracts," one suspects the issue is simply that, as often is the case, it perhaps is costing more to fulfill some of the major jobs than originally forecast. That would not be unheard of in the IT consulting business.

 

Though not fatal, the write-offs are an embarrassment as a major push into IT services has been touted as BT's future. Global Services accounts for around 40 percent of BT's total revenue but contributes only around five percent of operating profit.

 

As reviews are not finished, there could be more in store. BT CEO Ian Livingston says it's possible the size of any further provisions could run into hundreds of millions of pounds.

 

BT's temporary troubles should simply remind service providers that IT outsourcing often carries the risk that costs will be higher, and fulfillment more complicated, than sometimes expected, as the work almost always involved high degrees of customization. The other issue might simply be that BT has not been as effective as it wanted in getting the personnel it needs in place, while removing others who cannot provide as much value for this important business unit.

 

It perhaps is noteworthy that BT’s other lines of business, more related to its core legacy business, are doing better. That historically has been at least something of a problem for nearly every service provider that has moved into the IT services business as well. Wild levels of initial success have been difficult.

 

Separately, BT is increasing the cost of consumer line rental by £1 (approximately $1.38), meaning a new monthly rate of £12.50, or $16.66 on April 1, 2009. But consumers can save £1.25 ($1.74) a month by switching to paperless bills and get an even larger reduction by signing up for automated payment.