Introduction
You are to produce a review of the strategic situation of
BT
Consumer
,
a division of BT Group and
the
UK’s leading provid
er of
broadband
services
, based on the
provided
case studies
BT,
BSkyB
and the UK
broadband/payTV industry
2014
(A) and (B)
.
This review should take the form of a business report
–
NOT an essay.
Some of the things that you have been expected to include in your
essays in the past should not feature in this report. In particu
lar:
?
Business reports do not
include Harvard references
. You should
not include Harvard references
to material drawn from the
case
studies or core textbooks
.
?
You should not waste words on describing the theory
. You can
show you understand it
by using
it
co
rrectly
in your analysis
.
?
You
are unlikely to get any credit for a
critique
of
the theory.
That is not a skill we are testing here.
?
You are not expec
ted to supplement the case studies
with other
facts, and you will not get extra marks if you do. We do not
test
your research skills in this assessment.
In you
r
review you should use theory from the module to:
?
Examine
BT
Consumer
’s
business environment
?
Analyse
B
T
Consumer
’s
current strategy
, including its culture,
structure and HR strategy
Module No. SG6001
Module name
: Competitive advantage from Innovation
Coursework
component: 1
2
?
Appraise the strat
egy
–
how well does it fit the environment, and
how likely is it that the company can sustain competitive
advantage?
This assignment relates specifically to BT Consumer. You should only
discuss other parts of the BT Group if what you say is relevant to BT
Consumer’s competitive position.
Learning Outcomes assessed through this assignment:
1.
Discuss the main external contextual factors influencing an
organization’s competitive advantage and the HR function
3.
Appraise the fit of firms’ structure, culture
and HR strategies to their
competitive strategies
4.
Develop rigorous analyses of a firm’s business environment and the
implications for competitive advantage and the management of people within
private, public and third sector organizations
5.
Conduct de
tailed analysis and appraisal of a firm’s strategy
7.
Communicate complex ideas and analysis in forms suitable for an
informed business audience.
Details of the task
Assignment Instructions
Structure
You have been asked to produce a
management
report.
It should
contain the following:
?
Title Page, including the given title in full
?
Executive Summary
(No more than
20
0 words)
o
This should summarise your main
findings and
conclusions
. It is
not
the place where you tell us the
contents of the report
–
that happens in the Introduction
?
Contents Page
?
Introduction
?
Main body, which should also be organised under appropriate
headings.
You are recommended to use the ones in the
Assessment Criteria (be
low)
?
Conclusion
?
Appendices, which should be numbered
o
Make sure you refer your reader to them as required
?
Word count; excluding appendices and reference list
.
You are not required to provide recommendations.
Presentation
Your work
should be word processed in accordance with the following:
?
Font size 12,
1.5 line spacing
BT, BSkyB and the UK broadband
/pay TV
industry
in 2014
(A)
This case study was prepared by Adrian Haberberg from published sources, for the
purposes of classroom discussion and student assessment. It is not intended to furnish
examples of good or poor
management practice. © Adrian Haberberg and the
University of East London, 2014
In November 2013, BT, the UK’s leading provider of fixed line telephone and internet
services, sprung a major surprise. It was announced that it had outbid BSkyB for the
right
s to show live matches in the Champions League, the most prestigiou
s European
association
football tournament.
BT had already caused a stir in June 2012, when it outbid BSkyB for live broadcast
rights for 37 association football matches in the English Premier League.
But in terms
of financial commitment, and also in terms of the likely disruption to BSkyB’s
business model, this was of a different order of magnitude.
What did it portend for the
competitive landscape in pay TV, and broadband
–
for the two indus
tries wer
e rapidly
becoming one?
UK broadband
and TV
At the end of March 2014, there were 22.8 million home and small business
broadband connections in the UK. This
figure was growing at the rate of around 4%
per year
1
.
The proportion of adults with some form of
internet access was stable at 77% of the
population.
An increasing
number
of hou
s
e
holds
,
just over 6
million
,
were using
superfast broadband (delivered either via a cable service such as Virgin Media, or
through a fibre optic c
onnection) was growing strongly
,
by
over 50
%.
It was not just
that
access to such connections
becoming more widespread
–
it
wa
s
a
vai
l
able
to
around ¾ of UK homes.
T
he
proportion
that
had
actually taken ou
t superfast contracts
had risen sharply to
just
under
27%
, up from 18% a year earlier
2
.
People wanted fast connections to
download and stream
mus
ic and video
,
from
subscription TV
channels devoted to sport, movies and
blockbuster TV series
, and
from
vi
deo streaming services such as Netflix and Lovefilm
.
The BBC, the UK’s
national broadcaster, had made a large amount of content available
for free via its
iPlayer software application (“app”), which
work on
a wide variety of devices. The
other free
–
to
–
air UK channels
had followed
.
It was not necessary
to
have the internet in order to receive
live TV
. A
round
50
digital
TV channels
were
broadcast across the airwaves, using a system known as Freeview.
A basic Freeview receiver was embedded in
all TV sets sold in the UK, or could be
bought separately for less than £25.
More expensive devices (£120
–
150) gave viewers
the capacity to record
programmes, or pause and rewind them while they were being
watched.
Some offered access to a slight
ly larger selection of channels using a system
known as Freesat, which required users to install a satellite dish.
But most
of these more expensive devices
, and many mid
–
and high
–
end TV sets,
could be connected to the internet, and featured apps for iPl
ayer
and
other free
services, such as YouTube
. Some also served as gateways to subscription services of
various
kinds
, offering apps for gaming sites and streaming services
.
Broadband
access was needed to use any of these internet
–
based services, and faster broa
dband
significantly improved the user experience.
People
were increasingly
using the
same providers for their TV, broadband and fixed
line telephone services.
It
was becoming the
norm
for service providers to offer all
three
of these
services
–
the
“triple play”
.
Virgin Media and TalkTalk
offered
the
“quadruple play”,
including
mobile telephone services
as well
.
BT was poised to join
them
, in partnership with
EverthingEverwhere (EE)
.
EE
, originally a mobile phone
provider, had moved into the fixed broadband market and was poised to launch a TV
service
3
.
Broadband providers
Chart 1 shows
the market shares of the largest providers at the end of 2013
4
:
The five major providers differed somewhat in their approach to the broadband and
TV market.
BT
*
BT
’s leading position in the UK broadband industry c
ould be traced back
t
o its
roots
–
it
was once publicly owned
and the monopoly supplier of fixed line telephones
.
However, its share of that market has shrunk t
o 30%
, and Sky had
wooed away many
broadb
and
customer
s
.
BT launched
a
pay
–
TV service in 2006, but
b
y 2012, it was estimated to be losing
200,000 customers to Sky every quarter
, mostly people who already subscribed to
Sky’s satellite TV service
5
.
Its fig
ht back involved a substantial upgrade to its TV
offering. Firstly, it rolled out the YouView set
–
top box, which
offered
many
of the
*
note that more details of BT’s strategy will be available in a separate case study
31%
20%
15%
20%
3%
10%
Chart 1: Market share of internet service
providers
BT
Virgin Media
TalkTalk
Sky
EE
Others
1
BT, BSkyB and the UK broadband/pay TV industry in 2014 (
B
)
This case study was prepared by Adrian Haberberg
a
nd Elaine Yerby
from published
sources, for the purposes of classroom discussion and student assessment. It is not
intended to furnish examples of good or poor
management practice. © Adrian
Haberberg and the University of East London, 2014
BT
Group
When BT
first appeared, as British Telecom, in 1980, it was the monopoly supplier of
telephony services in the UK, a subsidiary of the Post Office. It was privatised
in
stages during the 1980s and assumed its present identity when the industry was
opened up to full competition in 1991.
The compan
y ha
d
diversified considerably from those
early beginnings.
In October
2014 it had
five lines of business:
?
BT Global Servic
es
had been
built by acquisition
during the 1990s. Its
business
was
the provision of networking solutions to large international
organisations
?
BT B
usiness provided
voice telephony, networks and broadband to SMEs and
larger firms in the UK and Ireland
?
BT
Wholesale
sold
communications products, mainly to other telecoms firms,
such as mobile operators, in mainland Great Britain
?
Openreach (see the (A) case)
was
a
regulated utility that provided
telephone
linkages between telephone exchanges and subscribers.
?
BT Consumer
is the main focus of this case study. It
sold
voice, broadband
and
TV services to UK households. Services include
d
cloud storage and
over
5 million
wi
–
fi hotspots in the UK
.
BT also owned Plusnet, which operated as
a separate company. Plusnet s
old broadband services in competition with BT,
and ran branded internet services for firms such as John Lewis.
The following figures show the revenues and EBITDA by line of business:
Source: BT (2014) Annual Report, p. 30.
Note that some of Openreach’s revenues are
internal
sales to other BT businesses
.
2
In addition, BT has 13,500 employees in BT Technology, Service and Operations,
which manages networks and systems for the five lines of business. It also undertakes
R&D and
manages BT’s patent portfolio.
The following figure summarises financial results for the past three years
. By
revenues, BT was ranked 421 among the world’s largest companies
1
, and was the
world’s 18
th
largest telecoms firm
2
–
of UK players, only Vodafone
was larger
.
On 31
March 2014 it had cash reserves and investments totalling £2.5 billion, having
generated about the same sum in free cash flow during the year.
Source: BT (2014) Annual Report, p.
8
.
BT Consumer
BT’s leading position in the UK
broadband industry could be traced back many years
.
The company’s broadband offering first appeared as an add
–
on to its fixed
–
line
telephone service, and the company’s high broadband market share
derived from
its
dominant share in fixed
–
line telephony. How
ever, its share of that market ha
d
shrunk
to 30%
,
with the UK government encouraging competition in the sector for the sake
of national efficiency. I
n any case it
was
unlikely that profits
could be extracted
from
“plain old telephone services”, as the indu
stry refer
red
to them
, for much longer
.
Although
modern
internet protocol (IP)
technology ha
d
reduced the effective cost of a
telephone call to almost zero, the price, led by operators such as Skype,
was likely to
fall
to the same level.
This insight led
BT to a realisation that in order to make decent returns, it would need
to sell services, rather than simply provide connections. All
five of its business lines
had
grown in this way, and the consumer business was no exception. The move into
pay TV was a l
ogical extension of this strategy.
The
investment in
sports rights,
t
he recruitment of well
–
known presenters and the
building of an ultra
–
modern studio in London’s Olympic Park
were
a strong
signal
, to
the world in general and BT’s own staff, that
the com
pany
was in the
TV
business for
the long term.
The first words of
Jake Humphrey,
BT’s
lead
sports presenter
were “
we
are where Sky were 20 years ago”
.
The
He
ad of BT Vision was quoted as saying:
“
We are a very different proposition than ESPN or Setanta. Th
is is a British
business,
this is our home mar
ket, you can’t chase us out of town that easily
.”
3
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