BusinessCompany NewsProfile: Karen Witts, CFO of BT Wholesale

Profile: Karen Witts, CFO of BT Wholesale

Ofcom rules have forced British Telecom to open its communications infrastructure to low-cost rivals. For Karen Witts, CFO of BT Wholesale, this means operating in a strict regulatory environment while riding the wave of new revenue streams

The BT Tower, one of London’s most imposing structures, celebrated its
40-year anniversary last month. Four decades on, and the 620ft landmark, built
to cope with the growing popularity of telephones, continues to attract its fair
share of both praise and criticism. In 2003, it was awarded Grade II listed
status the same year it was runner-up in a survey of London’s ugliest buildings.

The schizophrenic attitude to the tower is, perhaps, symbolic of the mixed
bag of fortunes the telecoms giant has experienced of late.

BT’s financial results for the six months to 30 September, announced earlier
this month prompted concerns that BT is failing to defend its patch in the
residential phone market. During briefings, executives were forced to concede
that more than a quarter of a million customers have defected in the past three
months alone, attracted by offers of cheap calls from rivals such as Carphone
Warehouse’s Talktalk and Onetel.

Fortunately for Karen Witts, CFO of BT Wholesale, BT’s plan to boost new
revenues from IT, broadband and mobile phone services appears to be paying off,
with turnover from ‘new wave services’ now accounting for more than 23% of
external revenue compared to 15% last year.

Witts describes BT Wholesale as the comms providers’ comms provider. It’s her
division’s job to provide the infrastructure on which BT and rival suppliers run
their services and networks. In fact BT supplies more than 600 fixed and mobile
operators and internet service providers, including BT Retail and BT Global

But despite the huge take-up of broadband services across the UK – BT now
claims to connect one new broadband customer every 10 seconds — and a growing
appetite for mobile communications, the challenges facing BT aren’t to be
sniffed at.

‘We’re managing a transition from the old world to the new. Traditional
revenues are declining and we’re having to match that with new wave revenues –
but they have lower margins. The focus on cost leadership is very important,’
Witts explains.

To suggest that BT Wholesale has a monopoly on the market is something of a
moot point. Only three weeks ago, BT launched Openreach, a new unit the company
was forced to set up to avoid being broken up by regulator Ofcom.

Due to be operational from January 2006, Openreach will operate BT’s local
loop, the last mile or so of cables between local exchanges and people’s
landline phones (see box opposite).

The £70m cost of the Openreach launch has already contributed to a fall in
profits in the second quarter to £489m from £571m. Despite remaining part of the
BT group, it will have its own headquarters and logo, and report its own set of

The unit will employ about 30,000 people, most of them field engineers moving
across from other parts of BT, making it the second largest BT unit in headcount
terms, with assets of £8bn and revenues of more than £4bn.

‘There were concerns of a monopoly,’ Witts explains. ‘We’ve always operated
Chinese walls and setting up this division really highlights the separation. It
makes things much more transparent. We’re demonstrating to the external world
that we’re operating on a level playing field.’

Ofcom’s initiative forms part of a strategic review of telecoms aimed at
reducing BT’s dominant position, and giving the company’s competitors equality
of price and the same access to fixed lines as BT’s own retail business.

The regulator has also said it wants BT to reduce wholesale line rental – the
price that telephone companies pay to rent lines from BT which they then hire to
customers. Telecoms firms have been asked to submit responses to the proposed
cuts by the middle of next month. The outcome of the consultation could have
further repercussions for BT.

Despite Ofcom’s directives, the growing technical complexity of the market
and its highly competitive nature, Witts is philosophical about the future. ‘We
live in a very sophisticated world in terms of technology,’ she says. ‘People
expect to be able to communicate at any time, any place, anywhere. Our vision is
all about allowing people to do that.’

At least Ofcom’s tight reins on the business and the highly-regulated nature
of the telecoms industry have made compliance with the corporate governance
regime a doddle.

‘As far as I’m concerned, corporate governance is just something you have to
learn to live with. It’s about making sure you meet requirements, but you can
incorporate some of those requirements in your day-to-day business. We already
did a lot of that when we went through our massive business process
re-engineering project.’

Witts is referring back to 2003/04 when she was group controller, responsible
for a massive financial systems transformation project to move away from
standalone lines of business and set up shared service centres for planning,
forecasting and management reporting. ‘We outsourced transaction processing to
supply trial balance information to financial analysts within the business. We
had 660 people doing management reporting. It was my job to automate systems and
reduce headcount by 40% in one year.’

The project was awarded to Xansa for an undisclosed sum. BT also used
consultants Accenture to advise on the restructure of the finance department,
alongside BT own consulting arm, BT Syntegra (now part of BT Global Services).
The project took 18 months and saved BT a staggering £65m. ‘The shared service
model is something that quite a lot of companies have, but not so many take it
quite so far.’

The real challenge, she admits, was psychological. ‘There’s a big mindset
change. It’s quite different being the CFO of a team of 500 people and moving
that to a team of 200 who rely on other people to provide management reporting
information. We didn’t stop doing anything until we had sign off from all the
lines of business. It was about capitalising on the best pieces of work in
different part of the business.’

Witts has been at BT for six years. She started her career at Ernst &
Winney, now Ernst & Young, as the result of a bet (‘a crate of champagne’)
after graduating in French and business studies from Edinburgh university. ‘The
theory was to gain experience in lots of different companies before deciding
what I wanted to do.’

Six months after qualifying, and with a secondment at Thorn EMI under her
belt, she left to pursue her career on the commercial side of the fence in
finance roles across organisations including The Observer, Mars and Diageo.

She might even have stayed at The Observer, were it not for the fact that her
now husband worked for the same company. ‘He was the financial controller and
interviewed me for a management accountant job,’ Witts explains. The ensuing
personal relationship, even a wedding and two children, weren’t the issues that
forced her to move on. ‘Working together wasn’t a problem until I realised that
I wanted his job,’ Witts says.

She moved to Paribas as an investment banker before joining BT UK, initially
as director of finance planning and analysis, and then as finance director for
BT’s business services area including BT’s IT community, property and
procurement, fleet, logistics and supply chain. Today she manages a team of more
than 100 people in finance and a further 100 in billing and revenue assurance.

Witts’ career may have been concentrated at the large corporate end of the
scale but she denies that an organisation the size of BT is an unwieldy
behemoth. ‘Yes, it can take a long time to make decisions. People have a
tendency to think it’s very institutionalised – but that harps back to the days
before privatisation.

‘I’ve been there for a long time. If it wasn’t interesting, I’d go somewhere
else. There’s a big ethos of team working. The people are nice and there’s a lot
of socialising. It’s amazing what you can achieve over a glass of wine.’

She may enjoy a swift drink in the pub after work with colleagues, but she
also admits to being quite a demanding boss. ‘I have a clear focus about what I
need to do. I’ve been described as cruel but fair. You have to be – you need to
know what you need to achieve and make sure people are achieving it. Anyone
working in finance today has hard decisions to make. You’re constantly
prioritising and that means that someone will get disappointed.’

After six years in the telecoms sector, she certainly wouldn’t describe
herself as an anorak, despite being a self-confessed email and Blackberry
addict. And she’s not ruling out a change of career direction in the future.
‘I’d never say never to anything. Opportunities have come along and in each of
case the environment has been amazing. I like companies where you can be part of
a team. I feel very comfortable in a big corporate environment.’

Given that she doesn’t get to see much of her own family during the week, the
importance of a family atmosphere in the office is understandable.

Fortunately about once a month, she and her family escape to their house in
an idyllic corner of Scotland, on a beach near St Andrews, to recharge their
batteries and Witts gets to practice a recently acquired skill.

‘I took some cycling lessons recently. I told the teacher I get frightened
crossing the road. The next thing I know, I’m in four lanes of traffic! I use my
bike more now but I’m still happiest doing a circuit in Battersea Park.’

Openreach adds a competitive edge

Earlier this year, BT agreed with the UK telecom regulator Ofcom to set up a
new access division, operationally separate from the rest of BT. The move was a
direct result of concerns about BT’s monopoly on the market – and suggestions
from competitors and Ofcom that BT had the potential at least to discriminate
against other players in the market.

Only three weeks ago, Openreach was launched, comprising of 30 million access
lines, 30,000 people, £8bn in assets and £4bn in projected revenues. The
creation involves 230 legally binding undertakings to deliver fundamental
structural, product, and governance changes related to BT’s access network,
including a new Equivalence of Access Board chaired by BT non-executive
director, Carl Symon, with a majority of independent board members to study how
well Openreach improves access to BT’s rivals.

Openreach will have separate financial reporting, operational support systems
and rules about information sharing from the rest of BT — costs that BT has been
telling the industry would be crippling in terms of finances, innovation, and
operations.But deliver – and be seen to deliver, it must. Ofcom chief executive
Stephen Carter has already said that the regulator is hopeful that this new
approach to competition regulation will stimulate investment, innovation and
sustainable growth in the sector.

Not everyone agrees. Business analyst Forrester has warned that the
restructuring does little to benefit the UK telecoms market. ‘It creates too
much unnecessary work and generates too few benefits,’ says Forrester analyst
Lars Godell.‘BT’s competitors and Ofcom have complained that BT has the means
and motive to discriminate against its downstream competitors, but they can’t
find any smoking gun — after 23 years!’

Admittedly BT is the only suppliers’supplier of non-cable broadband in the
UKbut even though 631,000 new homes were connected over its broadband lines in
the past three months, only 27% of them took an actual broadband service from BT
Retail – down from 28% in the previous quarter.

The only ones who stand to gain, Forrester believes, are Ofcom and the
lawyers, accountants, and lobbyists who succeed in exporting the UK’s regulatory
model or theidea of local loop unbundling to the restof Europe.

‘This deal will cement their service revenues and job security for years to

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