Outlook: Verwaayen's vision for BT: Small is boring but beautiful

Cuckoo Cazenove; Taxing idea
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The Independent Online

Ben Verwaayen is the incredible shrinking Dutchman and yesterday he set out his vision of how BT, under his leadership, is going to get better by becoming smaller.

Everything is reducing in size, from the level of the borrowings he inherited from the previous chief executive to the space BT occupies at its Newgate Street headquarters. It goes without saying that the slimming process will also apply to the workforce. But Mr Verwaayen is at least leading from the front by shrinking BT's politburo-style executive committee from 16 to just a handful of seats. If Ernst Schumacher had not coined the phrase three decades ago then Mr Verwaayen could have declared that small is beautiful.

As a corporate strategy, it is not one designed to set the pulse racing. But, then again, who is seriously in the mood for a repeat of the "rollercoaster ride" Sir Peter Bonfield promised everyone when he took charge in 1996? The adventure began with a failed $7bn bid for MCI of America and reached its apogee with the crazed auction of third-generation mobile licences. One rescue rights issue later, BT is only now beginning to emerge from under the crushing weight of debt bequeathed by the previous management. And it is a chastened BT that Mr Verwaayen has introduced to the outside world.

Gone is the grand global strategy that once saw BT intent on planting its flag everywhere from Japan to the US. Today, BT's "global footprint" consists mainly of a minority stake in the French mobile operator Cegetel and even that will be auctioned off as BT sets about the task of bringing its debts down to less than £10bn.

Instead, Mr Verwaayen will stick to his knitting, which means serving BT's 28 million domestic subscribers rather better. Perhaps something was lost in the translation from the Dutch but Mr Verwaayen actually says he wants to "delight" his customers. Most would probably settle for a lot less than that.

How will he achieve this? The big idea is broadband. The chairman, Sir Christopher Bland, who incautiously suggested just before Mr Verwaayen's arrival that BT intended to become big in broadcasting, has been put back in his box. But the only screen BT will be using to interface with its customers is the one they use on their PCs to download from the internet. Broadband, which allows that process to happen much more quickly, will be at the heart of BT, says Mr Verwaayen. And, just to prove it, he has set the company a target of five million connections within four years.

No one knows if this goal is any more achievable than Mr Verwaayen's pledge to reduce customer dissatisfaction levels by 25 per cent a year. Eighteen years after privatisation, BT still sometimes thinks like a branch of the civil service.

But interestingly enough, the three-year financial targets may just be within reach, even though they appear challenging on the face of it. Compound annual growth in earnings per share of 25 per cent may look a tall order. But there is still plenty of scope to cut costs and the fall in capital investment and debt-servicing costs is such that Mr Verwaayen says BT could be throwing off £1.5bn in free cash inside three years.

Mr Verwaayen also has the priceless advantage that the competition is in disarray. The cable operators have their own debt tragedies to handle, Energis is all but gone, and Colt is hanging on for dear life. As for local loop unbundling – the process which was supposed to open BT's domestic market to all comers – that has been the dog that did not bark.

As corporate challenges go, it is easy to see why BT opted for a relative unknown in Mr Verwaayen rather than a big hitter who would probably have come in, clashed with Sir Christopher and left in disillusionment a short while later. But that might just spell good news for shareholders. As a start, they have a re-instated dividend to look forward to.

Cuckoo Cazenove

Like the first cuckoo of spring, the start of the annual Cazenove season is always eagerly awaited. As the days grow longer and the news agenda shorter, the financial press goes in search of a buyer for this most blue-blooded of City institutions and this year the first sighting is of JP Morgan Chase.

Ever since the Cazenove chairman, David Mayhew, announced the company's intention to end its partnership status in November 2000 and go public, would-be trade purchasers have been spotted with monotonous regularity. Before JP Morgan there was Merrill Lynch, before that Goldman Sachs, and before that Morgan Stanley.

But the news of this latest would-be suitor has produced something unprecedented from Mr Mayhew – a public denial from an institution that usually does not speak even to confirm its name and a re-affirmation that it will float as planned in the next year.

It is easy to see why JP Morgan, weakened by falling investment banking revenues, might find Cazenove attractive now that there are signs of life once again in the new issues market.

Cazenove is envied for knowing not only when is the right time to tap the equity markets, but also in exactly which spot. It could give JP Morgan the sort of relationships that it may have thought that it was getting when it bought Flemings.

For Cazenove, a deal would open up the world outside the UK at a time when its European rivals are mounting a plausible challenge on its home turf. More than that, for the company's former partners there will be a chance to cash in their chips without having to wait until several years after the firm has floated for the golden handcuffs to slip off.

So why wait? Cazenove says the float would really be about incentivising new recruits with equity. David Mayhew, the chairman, says the board are united behind the plan. But what about the rest of the ageing former partners? We shall see.

Taxing idea

The CBI, bless it, would much rather have Gordon Brown impose higher taxes on individuals in next week's Budget than increase the tax burden on business still further. Bang on cue, along came the Liberal Democrats yesterday with a proposal that ought to suit the CBI's director general, Digby Jones, down to the ground.

Why not introduce a new 50 per cent rate of tax for everyone earning £100,000 or more? The £4.5bn raised would be enough to finance the £2bn reduction in business taxes asked for by Mr Jones and still leave enough in the kitty to fund pet projects such as another relief road around Birmingham.

Alas, turkeys do not vote for Christmas and neither do captains of industry volunteer to pay more tax to help their fellow men. Besides, as Mr Jones warned yesterday in his own Budget submission, businesses – and businessmen – are globally mobile and can easily vote with their feet if they don't fancy the tax regime.

The good news for the CBI is that the Liberal Democrats can only float such beastly ideas because there is no danger of being elected to introduce them. The bad news is that this will be a tax-raising Budget and the soft underbelly of business still remains the easiest target.

m.harrison@independent.co.uk

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