Industry news

The BT Group has reported a fall in pre-tax profits in its latest results, with a third-quarter drop of some 30 percent year on year – £447 million compared with £639 million in Q3 last year. This year's figure was hit by restructuring costs of £76 million as BT swept away a middle-management layer. Last year's near £1 billion tax credit has also muddied the waters for some less than canny analysts.

The group's profit drop was combined with missed revenue targets for Q3 in the wake of intensified competition in the broadband market, not to mention the 'Richard and Judy factor' of reduced premium-rate call volumes. Group revenues, however, were up one percent year on year at £5.15 billion. This was broadly in line with analyst expectations.

Specific items reported in the results included a charge after tax of £96 million, compared with the massive £992 million tax credit last year – which has led some people to report the results as a catastrophic year-on-year performance, rather than merely an unimpressive one.

The worst performer of the group was BT’s wholesale division, where revenues fell 11 percent to £1.2bn – no great surprise, given the increasingly commodity status of many of its services in a highly competitive market, and the spread of so-called 'local loop' services.

Amid the gloom there was good news for the market in terms of outsourcing and services. BT’s high-margin Global Services division reported revenues up six percent to £1.97 billion, and operating profits of £22 million, compared with £2 million in the same period last year.

Here the all-important margin on earnings before interest, tax, depreciation and amortisation (EBITDA) increased to 10.9 per cent. (EBITDA can be used as a financial dip-stick, in effect, into the underlying health of a company's cashflow, because those sometimes unpredictable changes in working capital have been stripped out.)

BT has set a bullish margin target of 15 percent for the services division, to be hit as early as 2009. "We expect continued growth in revenue, EBITDA, earnings per share and dividends, and a significant free cash inflow in the fourth quarter," said CEO Ben Verwaayen.

So where does all this leave the company? In some ways, the former national telco faces a problem analogous to that of our ailing railways. The company would love to build a super-fast network on a par with the broadband networks emerging elsewhere in the world, but it has a massive legacy infrastructure.

Creating fresh broadband connections around new-builds and brown-field sites as they are developed is easy and cheap – but replacing the legacy is not. It is rather like building the high-speed Channel Tunnel link versus maintaining our Victorian commuter lines. Virgin, meanwhile, is promising to supply 50 MBps broadband connections by the end of the year.

With revenue from the group’s traditional businesses declining by three percent, we can see a future shaping up for the British telecoms stalwart in diversified new media and technology services, but building a supporting infrastructure – in the UK, at least – will be massively expensive, and may compel the Government to step in an demand that it does so.

BT is certainly telling itself, and the market, that its future lies in services and new media. However, the group's BT Vision arm has so far pulled in only 150,000 subscribers, a long way short of the (vague) target of hundreds of thousands of customers that BT had predicted by the end of this financial year – now little over one month away.

So a mixed bag of results, certainly, with the promise of solid performance ahead for Global Services.

That said, there remains another lurking problem in the shape of potential changes in pensions accounting rules. Last week, the UK Accounting Standards Board published proposals on how pension schemes could be accounted for in future. These included putting pensions investment returns and changes in liabilities through companies' P&L accounts.

If these proposals are adopted, BT would be one of the worst affected because its £36.9 billion pension liability is much higher than the firm's current market capitalisation of £21 billion. A tough pill to swallow as interest rates are lowered by another 0.25 percent and analysts report more definite signs of a US recession.

As we reported in our exclusive news analysis last week, the severe winter storms have battered the Chinese economy just as much as its stranded people. The immediate financial costs of the storms to the sleeping dragon of outsourcing and technology skills – not to mention their long-term implications – are now becoming clear.

Investment banks Goldman Sachs and Merrill Lynch have both issued research notes warning that the sluggish government response to the crisis, stalled transport systems, and workers left queuing at railway stations in their thousands may be evidence that China is not spending enough on its infrastructure to be a credible economic superpower.

While there may be an element of international politics at play here – weather devastation and failed transport links are hardly unknown in the West, after all – it is certainly true that China has until recently been regarded as a paragon of inward investment, albeit one flawed by what I like to call the 'push-me, pull-you' nature of its party politics versus its market ambitions.

Figures released by Merrill Lynch, however, suggest that infrastructure spending has actually slowed since 2006. Meanwhile, three-quarters of a million homes have been damaged or destroyed, power outages have left millions stranded, or simply without power, and the effect on crops can only be guessed at for now.

Some median estimates have put the cost to the Chinese economy at $4.5 billion, but that seems a conservative figure. Other statistics are not in doubt: China is home to one-fifth of the world's population, and when combined with India, to nearly 40% of the population.

Ironically, all this may be good news for volatile global stock markets in the short to medium term, even if it is a blow to businesses working in China (not to mention governments concerned with keeping a lid on carbon emissions).

Just as the US has been the engine of the world economy in terms of dust-bowlers, high-rollers and super-bowlers spending the dollars in their pockets, so China is now the engine room driving global demand for energy and raw materials for its super-heating economy.

If Beijing takes seriously the international pressure to redouble its inward investment on transport, energy and utilities, that's a massive amount of buying power released from international isolation.

The long-term environmental impact of this is something that must be urgently considered and planned for in the West and elsewhere, just as China is learning the economic imperatives of crisis management and scenario planning in its centrally driven efforts to be the 21st century economy to watch.

Northgate Information Solutions, a leading provider of innovative services to the public sector and utilities markets, has signed two contracts worth a total of £1.2 million to promote efficient, effective and environmentally-friendly services.

Northgate will support Places for People, the leading housing and development organisation, and Service Birmingham, the strategic partnership between Birmingham City Council and Capita, to take their services out to local communities.

At Places for People, it will provide around 1,000 housing officers across the country with the ability to improve services for residents whilst out in the field. Maintenance requests can be logged on-the-spot, queries answered immediately, and residents receive help with completing housing application forms or amending payment schedules in their own homes. Staff will also benefit through reduced travel and the ability to work from home through removing the need to collect and return case files.

As part of its wider transformation programme, Service Birmingham has now selected Northgate as its preferred supplier for mobile services across the city. It will be used primarily by the housing department to find more innovative ways of delivering services that benefit both employees and citizens, particularly in the most vulnerable communities.

Tony Hayes, Head of Information Management & Technology at Places for People, said today: "Places for People focuses on creating places where people choose to live – whether that means providing brand new communities or transforming existing neighbourhoods into vibrant, popular areas to live and work. Our partnership with Northgate will enable us to deliver improvements to our services quickly, right at the point of need, through empowering our staff to take action in their communities.”

Oracle has launched its Data Integration Suite to combine traditional data-integration capabilities with an array of middleware and tools for constructing a service-oriented architecture (SOA).

Data Integration Suite costs $60,000 per CPU for a package that bundles Oracle Data Integrator and Oracle/Hyperion Data Relationship Manager with the company's BPEL Process Manager, enterprise service bus, application server, business-to-business engine and business rules engine, according to a statement.

"This is really Oracle attempting to go a long way toward providing a credible alternative to IBM Information Server," said James Kobielus, an analyst at Forrester Research Inc.

The Co-operative Group continues to strengthen its green credentials with the launch of a night-time energy-saving programme for the IBM Electronic Point Of Sale (EPOS) operations in its 2,200 food stores.

The launch marks a further green innovation for The Co-operative following the switch to renewable sources for the electricity for its mainland food stores. The introduction of the “Wake-up on LAN” programme will enable tills, receipt printers, customer and operator screens, chip and pin devices and barcode scanners that are currently left on overnight to be switched off automatically when stores close and to be powered up again the following morning before they reopen for business.

These include 7,500 till units, 7,500 receipt printers, 15,000 customer and operator screens, 7,500 chip and pin devices and 7,500 barcode scanners. The Group says it will save 1.68 million kilowatt hours of energy per annum by using the system, which has been developed by the Group’s in-house IT team who worked in collaboration with IBM to re-engineer the Group’s InControl store end-of-day batch process system.

Savings on its energy bills are expected to be around £120,000 per annum along with a reduction of 722 tonnes of carbon dioxide.

The introduction of the programme will also significantly prolong the life of the hardware, and therefore reduce the environmental impact still further by less frequent renewal. Implementation starts this month and is expected to be completed by the summer.

Mark Hale, Director of IS Food Retail, said: “The re-engineering of the EPOS system so it can be shut down at night clearly underlines The Co-operative Group’s continued commitment to the environment and to finding new ways of saving energy.”

Janine Cook, Director of Retail Store Solutions, IBM UK Ltd, commented: IBM has a commitment to developing products that reduce consumption of energy, and working with The Co-operative Group we’ve helped them release savings they can plough back into their business.”

The Co-operative has set itself a target of reducing energy use at all its premises by 25% by 2012.

US banking giant Citigroup has temporarily halted the sale of its business process outsourcing (BPO) unit in India, according to local press reports.

India's Economic Times reports that the sale of Mumbai-based Citigroup Global Services - formerly known as e-Serve International - has been halted as Citigroup reviews its operations after being badly burned in the credit crisis.

Speculation that Citigroup was looking to sell off the Indian unit came to the fore in July when it was reported that the US bank had shortlisted three bidders - Genpact, Firstsource and WNS.

A $700 million deal with Genpact was close to completion but a fall in the stock market led to the sale being cancelled, says the Economic Times report.

Citigroup Global Services employees about 8000 people in Mumbai and Chennai. The US bank took over the BPO unit in 2004 by acquiring the 55.6% it didn't already own in the business.

Repair work has started on one of three broken undersea cables providing data services to parts of the Middle East and Asia and a repair ship was expected to reach a second cable on Tuesday, reports Reuters.

Undersea cable connections were disrupted off Egypt's northern coast last week when segments of two international cables were cut, affecting Internet access in the Gulf region and South Asia, and forcing service providers to re-route traffic.

A third undersea cable, FALCON, was reported broken off the coast of the United Arab Emirates on Friday and Indian-owned cable network operator FLAG Telecom said on Tuesday a ship had reached the location and repair work had started.

IBM today announced it will establish the first Cloud Computing Center for software companies in China, which will be situated at the new Wuxi Tai Hu New Town Science and Education Industrial Park in Wuxi, China.

The center will offer emerging Chinese software companies the ability to tap into a virtual computing environment to support their development activities. It will be established through an agreement signed today between IBM and Wuxi Tai Lake Industry Investment and Development Company Limited.

IBM will work with Wuxi Tai Lake Industry Investment and Development Company Limited; the Wuxi municipal government; and its business partners to build the China Cloud Computing Center, which will be a shared facility providing each software company in the park with its own virtualized computing resource. For example, a company will be able to use the allocated resource for designing, developing and testing its software products. Such virtual environments can replace the traditional data center model, in which each company owns and manages its own hardware and software.

Companies in the park will be able to access these common services provided by the center at any time -- just as they use utilities and other shared services. The technologies being offered to the community include IBM Rational software development tools, WebSphere Application Server software and DB2 database software running on IBM System x, System p and BladeCenter servers. IBM Tivoli systems management software will manage the cloud computing environment.

The two year effort, valued at approximately $27 million, will significantly enhance PECOS and enable state governments to voluntarily adopt it as the Medicaid enrollment system for all providers and suppliers. PECOS is already the established system of record for Medicare providers and suppliers.

CGI Federal, Inc., a wholly-owned U.S. operating subsidiary of CGI Group Inc., today announced that the U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services (CMS) has chosen CGI to implement CMS’ Provider Enrollment Chain and Ownership System (PECOS) One-Stop-Shop release.

One-Stop-Shop represents the first information technology initiative to process Medicare and Medicaid business transactions at the national level since Medicare’s and Medicaid’s inception in 1965. In conjunction with the states, One-Stop-Shop will create a consolidated provider enrollment form to establish a common basis for much of the data collected while at the same time providing the flexibility, if necessary, to support state specific data that can be seamlessly integrated into the system. “While time and money will be saved as a result of increased operational efficiency, a major value to CMS, the states, providers/suppliers and US taxpayers will be a reduction in Medicare and Medicaid fraud and abuse,” said Dave Collignon, Vice-President, Public Sector Health, CGI.

“CMS has been a customer of CGI since 1998 and we are pleased that they are continuing to partner with us to help improve Medicare and Medicaid program efficiency,” said George Schindler, President, CGI Federal. “CGI brings its healthcare program expertise at both the national and state level to this important effort. CGI’s business is satisfying clients and this opportunity is an affirmation of the quality of work that CGI delivers to CMS. We look forward to continuing to support CMS through One-Stop-Shop and our other initiatives.”

Accenture will provide South West Water with customer-care and billing services and manage South West Water’s back-office operations under a 10-year outsourcing agreement the two companies signed recently.

Under the agreement, Accenture will help South West Water enhance its technology, business processes and workforce performance to improve service levels for its customer base in Devon, Cornwall and parts of Dorset and Somerset counties in England while controlling service-delivery costs.

South West Water will leverage the process models, training methods, applications and assets developed by Accenture Utilities BPO Services, which provides similar services to more than two dozen utility clients in North America and the United Kingdom.

“We are delighted to have chosen a partner whose strategic objectives to deliver high-quality, cost-efficient customer services and collections align so closely with our own Pure Service objectives, said Monica Read, customer service director of South West Water. “We believe our partnership with Accenture will deliver an enhanced customer experience and a reduced cost to serve, confirming to our customers our commitment to provide them with the quality service they expect at the right price.”

Keith Mueller, managing director of Accenture Utilities BPO Services, said, “Utilities like South West Water, with plans to become high-performing organizations, are taking the initiative to modernize, innovate and seek the most efficient and effective ways to deliver outstanding services to their customers. We will be creating a UK showcase of the processes, technology and performance models Accenture Utilities BPO Services has developed and refined over the years with utility companies around the world and share these with South West Water and other utility clients.”