BT to slash £1bn from costs

The chairman of BT has insisted the company will cut £1 billion from operational costs, after costly business at the company’s Global Services division.

Sir Michael Rake acknowledged the “unacceptable” performance of BT Global Services, where multibillion pound deals with the NHS and Thomson Reuters are said to have wiped over £1.6 billion from its books.

In a speech to shareholders - who in May were angered as the writedowns were announced - Rake said that Global Services, the IT services division, must be turned into profit. He said this was a “key priority”.

BT has experienced extensive problems in its work with the NHS under the £12.7 billion National Programme for IT, as early London rollouts experienced system crashes and were losing patient waiting lists.

But in June it was able to increase the value of its contract by over 50 percent to £1.57 billion for some extra work. Analysts Ovum claimed that as one of the only two remaining suppliers, alongside Fujitsu, BT had the NHS "over a barrel" in negotiations.

Not as much is publicly known about the problems with BT's £1.7 billion contract with Thomson Reuters, under which it is providing network services for the company to deliver to 330,000 clients.

In spite of these problems, BT would make changes and emerge “stronger from the recession”, Rake said. These changes are set to focus on customer service, cost transformation and developing next generation networks under the government’s Digital Britain plans.

Three months ago, BT said it had made 6,000 contractors redundant, and warned of 10,000 potential further cuts. It also had cut pay by up to 30 percent for other contractors. Reportedly, it has frozen pay across its business.

“The board is committed to delivering attractive returns for shareholders,” Rake said today. “We believe that operational improvements in the business will generate sufficient cash flow to allow the dividend to grow at the same time as we invest in the business, reduce debt and support the pension scheme.”

Copyright © 2009 IDG Communications, Inc.

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