Net gain for boss they said was nuts

A FIGURINE of The Muppet Show's famous moaning hecklers, Statler and Waldorf, greets visitors to Ben Verwaayen's spacious office in central London. The chief executive of BT received the plastic statue from his driver and secretary as a Christmas present and it takes pride of place at the front of his desk, from where Verwaayen says it serves as a good ice-breaker if anyone entering his office appears unhappy.

"We always have jokes," he says with a wry smile. "This time they gave me the Muppets to prevent me from turning into a grumpy old man. I thought that was funny. If someone looks unhappy when they come in to the office, I give them the statue to cheer them up."

Not that there are too many reasons for the quirky 54-year-old Dutchman to turn into a grumpy old man yet, nor for many of BT's employees to be too unhappy.

In the five years since Verwaayen took over as chief executive, BT has been transformed from an ailing and debt-ridden fixed-line telecoms group faced with the rapid decline of its core business into a lean, successful broadband-led IT and communications group. Last week, BT said it had smashed through the 10 million broadband lines barrier. In doing this, Verwaayen proved wrong the many critics who said he was "nuts" when he first set the goal of reaching five million lines in April 2002.

Verwaayen has received high praise personally, and was nominated as businessman of the year in a recent media poll. He didn't win, but with a characteristically European shrug of the shoulders, says it is important for the company, and not him, to win awards.

BT, he insists, remains a work in progress, and he is facing challenges in an increasingly tough domestic broadband market and in holding its position in the supply of global IT services to businesses.

Verwaayen, who has a reputation for having a short temper, says: "2006 was important for two reasons. On the global front, we have signed more business than in any other year. BT is a recognised brand in the corporate world.

"On the domestic front, 10 million broadband users is a fantastic symbol of the changes that have taken place in the business. This year will be as big as last year."

The growth of broadband - or high-speed internet - has been the centrepiece of BT's revival and 99.8% of British consumers can now get it.

The company's 10 million users are divided among Openreach, Wholesale and Retail divisions. Openreach - which manages BT's local exchange network - supplies lines to 1.3 million resellers such as Sky and Carphone Warehouse to access services through local loop unbundling (LLU) or by installing their equipment in local exchanges.

Another 5.7 million corporate customers take services from BT Wholesale, while three million householders use BT Retail.

The market is still growing, with convergence of communications, media and entertainment enabling people to access the internet over mobile phones and TVs.

"It's pretty well accepted that people... have their families around the PC and they click on the mouse and chat. You can have a conversation between a grandmother and grandson 5,000 miles apart.

"It allows people to make choices. Ten years ago, it was not socially acceptable to use your mobile phone on the street. Now you have to be very good in getting people's attention, otherwise they are staring at their BlackBerries."

The launch of BT Vision last month, enabling users to watch films, music videos and TV shows over the internet, was the culmination of a long-held BT ambition. It takes all the TV channels currently available to Freeview customers along with paid-for premium content provided by suppliers such as Channel 4, Walt Disney, Warner Music and Nickelodeon.

Verwaayen is coy about how things have gone since launch, although the group has bought itself breathing space by claiming it has modest initial targets. "So far, so good," he says. "It's about the quality of the interaction around your TV and taking control and making choices. Innovation is about capability, services that are allowing people to do what they want to do."

Convergence of services, and the launch of BT Vision, has put the group firmly on the path towards a showdown with Sky, which recently bought a stake in ITV and has big ambitions for the broadband market.

Sky has more than eight million digital TV subscribers and Freeview, the BBC-backed service, is in 6.5 million homes. BT believes Vision can take market share from Freeview because customers will pay for some premium content in addition to the free regular channels, and from Sky and NTL, who will be attracted to the mix of paid-for and free channels. Add Sky's £400m investment in its own broadband service, and the expansion of companies such as Orange and Carphone Warehouse - which is winning market share with its TalkTalk service - and there is plenty to keep Verwaayen and his team busy.

"I would never be dismissive of competition. Sky is a fabulous brand and a well-run company. They are - were - in a different business to where we are. It will be interesting to see where convergence will go. I have no idea how buying 19% of ITV fits into their strategy. Carphone Warehouse is a competitor and a customer."

Verwaayen was working at Lucent Technologies, the US telecoms equipment maker, when he got an SOS telephone call from BT in 2001. Sir Christopher Bland, BT's chairman, had begun refocusing BT on its core UK market. The previous chief executive, Sir Peter Bonfield, and the former chairman, Sir Iain Vallance, had built up a sprawling but unprofitable overseas empire which helped saddle BT with debts of £30bn. The dotcom bubble had burst, and BT was in the doldrums and unpopular with City institutions, which was reflected in the battering the group took in the media. Verwaayen says: "Every article in the papers was bashing BT."

It was tense at first, but a year into the job green shoots were emerging. He says: "I had been at the company for about one year when Sir Christopher Bland stormed into the office. I knew it was something important. He says: 'Have you seen this?' There is not one press clipping today.'"

The pair decided to concentrate on broadband and selling parts of the business to reduce debts, starting with the demerger of its mobile phone arm - now O2 - and continuing with selling international assets and a £6bn rights issue. Shares which were worth around 223p before Verwaayen joined in 2002 closed at 317.5p on Friday - after earlier reaching their highest level since September 2001.

"The financial community was sceptical in the beginning," says Verwaayen. "Now they have some understanding of the business model. That's been quite a change of emotion. The market is always right. We were not clear enough in explaining the dynamics of the market. We are more responsive and less defensive. We are focused on shareholder needs."

After five years in the job, Verwaayen insists he is still happy at BT and it is hard to see where he could go for a bigger challenge in corporate Britain. Some role in politics may beckon, however. "I have never done career planning in my life, and I'm 54 now and it's a bit late. I'm here to serve at the pleasure of the board. It's a fantastic business and as long as the board is happy, that's okay. I'm very interested in politics... but not professionally. I'm a very active participant in public debate and social issues."

Verwaayen insists he still has much to do at BT, including expanding and making more profit from the group's successful global services division, which manages communications and IT networks for companies and public sector organisations.

"Global services has changed BT profoundly," he says. "When I came here five years ago, the best advice I got was 'sell it'. It was losing something like £1bn in cash. The best thing we did was not to sell it. It's a winner. It's very profitable and growing the top and bottom line."

But not everyone is convinced by the BT story, and there are mutterings in the City that the group is restricted by not having a mobile business.

BT has tried to get round this by launching Fusion - a service which switches between BT's landline in the house and Vodafone's network outside.

Verwaayen says: "We have a converged business and our partnership with Vodafone is working beautifully. It's true innovation. Telefonica paid £17bn for O2 and good luck to them - it's a fantastic company. Our strategy is to go for convergence."

More immediately, Verwaayen and fellow board members will have to recruit a replacement for Bland, who will step down at the AGM in the summer.

Bland's successor - and how well he gets on with Verwaayen - will have a part to play in deciding whether the Dutchman remains in a good mood this year or becomes a grumpy old man.