Yahoo Finance BT forced to pay £225m to avoid court battle over Italian accounting scandal
BT has been forced to pay £225m to avoid a court battle with Deutsche Telekom and Orange over the accounting scandal in Italy that has battered its finances.
The German and French telecoms giants are among BT’s biggest shareholders, having accepted shares in part exchange for the mobile operator EE last year.
They watched on in January as revelations of complex fraud prompted a plunge in BT’s share price. The fraud blew a £500m hole in BT’s cash flow and caused a £571m write-down, triggering the company’s worst ever day on the stock market.
The disaster could have been a basis for legal action by Deutsche Telekom and Orange under warranties included in the £12.5bn EE takeover agreement.
BT chief executive Gavin Patterson said the settlement with Deutsche Telekom and Orange was “clearly disappointing” but necessary to avoid legal action. Full-year financial guidance was not affected, Mr Patterson added.
Mr Patterson said: “It has only very recently come up. If a claim was going to be made, it had to be made by today.”
BT’s shares dipped more than 2.5pc in early trading.
The company also announced that the head of its consumer business is to exit the company as part of a major shake-up that will merge the unit with the mobile operator EE. John Petter, a longtime ally of Mr Patterson, is stepping down after four years in charge of BT Consumer.
Mr Petter has been with BT for 13 years and previously worked with Mr Patterson at the cable operator Telewest and Procter & Gamble. He played a key role in the development of BT Sport, with the company’s first raid on the Premier League rights auction masterminded from his Battersea kitchen to maintain secrecy.
His responsibilities for home broadband and phone services, BT Sport and TV, will be assumed by EE chief executive Marc Allera, who will lead integration of the mobile operator with BT Consumer from next year. The two lines of business will continue separately until then and separate brands will be maintained after the merger.
The merger is among the first results of Project Novator, an restructuring effort meant to simplify and streamline BT in the wake of a series of costly blunders, including a major accounting scandal in Italy.
The Global Services division behind that failure is likely to be brought together with BT Business and Public Sector later in the year, according to company sources.
BT revealed Mr Petter’s departure alongside its first quarter financial results.
The latest blow over Italy added to pressure on profits in the first quarter, which collapsed 42pc to £418m as BT also counted the cost of a £342m bill in fines and compensation for abuses at its network subsidiary Openreach.
Higher operating costs also weighed on BT’s bottom line. A sharp rise in the business rates due on its network, higher pension top-up payments and more expensive Premier League rights all contributed to an 8pc increase on last year.
Overall revenues were up 1pc to £5.8m, driven by growth in BT Consumer and EE, which reported a 9pc increase in average mobile bills on the back of strong demand for data on the move. BT Consumer benefited from price rises, with revenues up 7pc.
There were signs of a slowdown in the broadband market, however, as Openreach, which provides connectivity for Sky, TalkTalk and Vodafone subscribers as well as BT, reported only 36,000 new lines. That compares with 95,000 in the same quarter last year.
Revenues in BT Business and Public Sector were down 4pc and flat in Global Services.
Mr Patterson said the overall performance was “encouraging”.
He added: “The broadband market is quiet. As the market matures and you can’t sell any more broadband it’s going to be about retention and selling more for more.”
