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John Petter: from telephone to TV...

John Petter

In this edition of Communicate, John Petter, chief executive of BT’s Consumer business, tells us how BT Sport and superfast broadband are working out in the UK, as well as his views on a range of other factors affecting his business.

BT Consumer is the part of BT that provides a range of communications products and services including voice, broadband and TV, direct to residential customers.  

What are the opportunities for your business currently?

“The UK has the highest-priced premium sport options in Europe, which presents a great opportunity for a cheaper alternative like BT Sport and one of the major reasons we launched the channel. 4.6m people didn’t watch any premium sport last year, we’re changing that.

“We also made BT Sport far more affordable to pubs and clubs, many of whom had previously been unable to pay the high prices charged to show their customers top flight football from the Barclays Premier League and rugby from the Aviva Premiership. Feedback from many publicans has also been excellent with many telling us how it has helped grow their business by being able to offer something new to their customers.

“We have around 2m customers on fibre optic broadband currently but 19 million premises can access it thanks to our substantial investment in urban and rural areas – following BT’s success in bidding after a competitive tender process for BDUK contracts. We’re working on upgrading customers but people think a much faster and improved service costs a lot more. It doesn’t and we’re trying to show this through our marketing.

“We are also very much looking forward to relaunching BT into the mobile market later this year. The opportunity to do this in an innovative way comes through the pairing of our huge wi-fi hotspot base with 4G spectrum we bought recently. But we’ll talk more about that at the launch!”

How can politicians help you and your customers?

“We’re looking for recognition that consumer services are converging. People increasingly buy mobile, TV and fixed voice and broadband services from the same provider. Regulation hasn’t caught up with this so, for example, the Ofcom rules affecting voice and broadband apply less stringently to Sky because its pay TV services over satellite can be supplied on a standalone basis, whereas a BT TV subscription requires a broadband connection. Similarly, Ofcom is consulting on regulating BT heavily on how it provides bundles, including fibre broadband, while allowing Sky and other providers selling bundles almost complete commercial freedom.

“Also, some mobile prices are high because competition is relatively limited between providers. If you want to change your mobile provider you have to call it to tell it the bad news and get your PAC code, which you’ll need to give to your new provider. In the fixed telecoms world, callers do not have to do this, making movement between providers easier and keeping prices lower. Some mobile providers even lock the phone that people have paid for so they can’t be used on any other network.

Easy switching between providers is key to a competitive market: imagine if you thought you could get a better deal from another supermarket than the one you usually visit, you’d just go to the alternative shop. If it were like the mobile world as it is now you’d find the manager of your usual supermarket standing on the doorstep barracking you with ‘special offers’ to go back to his or her place. So these short term offers will guarantee that the original shop can trade pretty much as it did before, leaving customers no better off; that’s exactly what’s happening in the mobile market now.

“In the next Parliament we’d like to see changes to the Communications Act to create a single regulatory framework that covers all bundle elements equally so that pay-TV can be as competitive as those in fixed phone and broadband markets.”

How do you persuade people to buy from you rather than Sky or Virgin?

“By giving people what they want. We combine fast broadband speeds with low cost premium TV. We also own Plusnet, an internet service provider that has an emphasis on affordability because of the way that it’s structured as a smaller business.”

What is fibre bringing your customers?

“Significantly faster speeds. When I first worked in broadband 14 years ago we couldn’t think of what people would do with 0.5mbps! That’s all changed now and one of the reasons is the huge growth in video traffic. And smart phones and tablets, just think of how many of them there are around now, most being used to play video of one sort or another. And most of this data being consumed by mobile devices is being carried via fixed networks.

“If you’re in a household where more than two of you are trying to watch TV and other video via the internet fibre really comes into its own. We’re offering fibre so that people so can see much better quality TV and video despite how many of them want to watch different things at the same time.

“And people who work from home want fast access to information. Fibre is helping those with the most demanding jobs data-wise re-invent their lives and work away from the offices that typically had access to big capacity data links. We are seeing the most innovative uses now, particularly in Cornwall, which is a pioneer in the use of fast broadband. Some great examples include home businesses providing violin music composition and tuition across the world and a multi-million pound hedge fund trading as if it were in London. These examples will grow as more of rural Britain starts to see the difference we’re making to increasing broadband speeds via BDUK funding and the roll-out of fibre ever deeper into the nation. ”

(You can see case studies of media, arts and music business, Genius Loci and Instructus Markets hedge fund).

Just how competitive is the market you work in? Can you make any comparisons?

“Prices have come down hugely in broadband and voice services because of competition; broadband speeds, availability and use have increased while prices have declined. Ofcom says that the average price of a broadband package decreased by 48% between 2004 and 2012. And the UK ranks cheapest, or second cheapest, when compared with the US and major European countries on communications services. Also, BT’s upstream inputs for providing voice and broadband services are available to all providers, including BT Consumer, on equal terms.

“Very few other markets can compare with this. Energy and water prices have all increased. Pay TV has also increased overall, we’re doing our bit to halt that but we’re still very new entrants to that market.”

Any comment on Ofcom’s recent announcements re TalkTalk and margin squeeze?

“We’re pleased but not surprised at the verdict. It was clearly a very tenuous argument that there was an insufficient gap between our wholesale prices and market prices for consumers in the competitive retail market for other operators to make a profit, particularly when TalkTalk’s CEO had recently been so vocal about the company’s significant profits and its ability to earn a margin on fibre.

“With regard to Ofcom’s proposals on new regulations on BT’s superfast broadband margins, we don’t believe there is a case for offering further assistance to big companies such as Sky and TalkTalk in the broadband market. This is even more obviously the case when the pay-TV market remains relatively unregulated.”

How has BT weathered the recession?

“We have been one of the few UK firms to have invested during this time. We’ve put billions of pounds into the UK’s broadband infrastructure through our substantial investment in fibre roll-out in urban and rural areas and launched a new sports TV channel. The rate at which we have installed fibre and the coverage achieved in the UK is very positive compared with the rest of Europe.

“Financially we’ve performed well and our fibre roll-out has created a great many jobs. And we’re the third largest investor in R&D across any sector in the UK.”

Are you a communications or a media business?

“We want to be invaluable to people, to keep them informed and entertained, so we’re both!”

How is BT Sport going?

"We have five million customers now and the wholesale deals with other TV providers, such as Virgin, have worked well for us. As a new entrant into the pay TV market, we continue to face significant challenges in our ability to grow our sports channels given Sky’s position and we continue to press the case with Ofcom for appropriate regulation of Sky Sports to help introduce more competition and level the playing field.”

It must have been a very difficult decision to get into sport in the way that you did, how did you decide to bite the bullet? 

“BT is a company that has weathered the recession well, which gives us the chance to consider how we expand our business in a way that benefits customers, employees and shareholders. We had always considered purchasing football and other sports rights at various points in the past, but somehow at those times it didn’t seem quite right to do so. This time we knew it was the right thing to do, and when you realise that only one in five people are willing to pay over £50 a month for premium TV sport in the UK, we knew for certain we were making the right choice for UK sports fans.

“Also, Britain came alive during the Olympics, sport was a huge topic for many who either hadn’t had an interest for a long time or had never had an interest at all, the time was right for customer interest. BT was also the lynchpin behind the broadcasting of the Olympics, we provided the infrastructure and much of the technology that led to such a fabulous broadcasting experience, we knew from this that we could be a quality broadcaster too.”

Now you’re a rights holder what challenges does copyright hold for you?

“Like communications, the creative industries are important to the UK economy and we believe in supporting efforts to ensure Britain’s creative individuals earn fair reward for their work. But we don’t think the Digital Economy Act was properly thought through, it was onerous and not customer friendly. That’s why we’ve been working with rights holders, other ISPs, and the government to find other ways of protecting customers’ rights, while showing them how they can access great content legally.”

There has been a lot of interest from politicians and others on the protection of children online, how have you responded to this?

“The internet is a fantastic tool for the education and development of children. BT wants to ensure that children can access an open internet but also a safe internet so they can realise its full potential. We’ve offered device-based parental controls for many years to help parents manage their children’s internet use and we’ve pledged to provide all new and existing customers with an unavoidable choice to install network-based parental controls.

“This year we’ve launched two major initiatives that will make the internet an even safer place for children. With Unicef UK we’ve started a three-year education programme, The Right Click: Internet Safety Matters which aims, to help children to protect themselves online, and help parents to keep their children safe on the internet. We’ll work with teachers, parents and children on practical ideas and tools to keep them safe online. And with Sky, TalkTalk and Virgin Media, BT has created Internet Matters. This is a standalone, not-for-profit, organisation that empowers parents to keep children safe online by encouraging them to learn about online safety, talk to their children about it and deal with online safety issues.

“We have also for years worked with the Internet Watch Foundation to automatically block illegal images of child sexual abuse.” 

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