There will be several reactions to news that BT is cutting some 13,000 jobs on a gross basis and 7,000 on a net basis.
The unions and the Labour Party will, naturally, say – as, indeed, the Shadow Business Secretary Rebecca Long-Bailey did – that this is all about appeasing shareholders.
There is some merit in that. One of the most surprising aspects of today’s announcement is that the dividend has been held when a sizeable proportion of the City analysts who follow BT’s fortunes had expected it to be cut.
There is certainly a case for saying BT could have cut the dividend since, judging by the violent share price reaction to today’s news, the company has received little credit for maintaining the pay-out.
But a near-8% fall in the shares scarcely suggests investors are being appeased: it suggests they’re downright despondent about this company’s prospects.
Another reaction will be that this is the upshot of some hubristic empire-building by an over-ambitious chief executive.
Under Gavin Patterson, BT has splashed billions of pounds on buying sports rights and, even more dramatically, £12.5bn on re-entering the mobile phone market with the acquisition of EE.
Yet that is not strictly correct either. The acquisition of EE was a thoroughly sensible thing for BT to do, as the annual results announced today bear out.
Earnings in the unit shot up by 17% during the year, making it the fastest growing part of BT, on that measure, by a country mile.
The cash it has generated for the business was up by a third, to £754m, enough to cover half of this year’s dividend to shareholders on its own.
The investment in sports rights was more questionable, but that is partly because it is difficult for BT to put an explicit figure on what it has done for the business, in terms of, for example, preventing customers from defecting elsewhere.
And the company had to do something.
The telecoms, media and technology sector has been converging for more than a decade and, when Sky – owner of Sky News – began giving away a free broadband service in 2006, BT had some pretty big tanks parked on its lawn.
The incumbent telecoms operator had to do something to protect its market share.
Concerns about the cost of sports rights are, in fact, starting to soothe after Sky and BT paid less for live TV rights in the latest auction held by the Premier League and, just as critically, the agreement the two companies reached just before Christmas to sell each other’s channels on their platforms – a move that promises to boost BT TV’s hitherto disappointing subscriber numbers.
Anyone who knows Gavin Patterson, meanwhile, would not recognise the characterisation of him, by some commentators, as a swaggering empire-builder.
So, if those two reactions are inaccurate, what is the correct explanation for BT’s woes?
Several come to mind. One is the biggest pensions deficit in the private sector – which, yes, even 34 years after privatisation, remains a legacy of BT’s previous existence as a nationalised industry when jobs were for life and pensions were stunningly generous.
Too generous, as it turns out, given the propensity of BT in days gone by to allow some workers to retire at as young as 50 and the propensity of some former BT employees to carry on living for far longer than they were expected to at retirement.
That has created a deficit in the pension fund of £11.5bn and BT’s solution, unveiled today, is to pump £4.1bn into it by 2020.
Another is that – and some in BT will dispute this vigorously – after years of allowing BT to run rings around it, the industry regulator, Ofcom, is finally getting to grips with the company.
After years of trying to wring more life out of its network of copper wires, BT is being compelled to invest more in fibre to provide more UK homes with ultrafast broadband and 5G, which will cost it £3.7bn this year.
The cost of that extra investment is already showing in the results.
Openreach, BT’s infrastructure arm, remains the most profitable part of the business – but the cash it generated for the company was down this year by almost a quarter.
And that is even before taking into account the ongoing uncertainty over how much the regulator will allow Openreach to charge its customers – the second-largest of which, after BT Consumer, is Sky – in future.
A third problem is Global Services, for many years the worst-performing part of BT, which generates a fraction of the returns produced by other parts of BT, including Openreach, EE and BT Consumer, despite enjoying similar annual revenues.
This was the part of the business, don’t forget, in which an Italian accounting scandal was uncovered in 2016 – the second accounting black hole to have beset the division in a decade.
The division remains a drain on management time and capital.
Meanwhile, more customers are making less use of traditional services like fixed-line telecoms and phone boxes (does anyone actually use them anymore, other than as urinals?).
Also, with the customer base at Global Services being pruned to focus on the most profitable customers and BT’s market share in services like fibre at risk from smaller and more agile competitors, sales are set to shrink during the new financial year by 2%.
So, higher pension contributions, more investment in fibre, an uncertain regulatory environment and the top line contracting.
With that backdrop, cost-cutting was of the essence, particularly for a business operating in a sector in which automation offers massive scope for productivity improvements.
Few people who are familiar with BT will dispute Mr Patterson’s comments today that the company’s structure is “complex and overweight”.
That may sound cruel to the net 7,000 workers set to lose their jobs.
But the big question investors are asking, as shown by today’s share price fall, is not whether Mr Patterson has gone too far – but whether the surgery he has unveiled is radical enough.