Cut off: Big government IT wallets snap shut on BT's fingers
Reg Whitehall spend analysis reveals cash flowing away
BT, which until 1984 was part of the UK public sector, is losing its grip on the public purse.
Spending with BT by the Department of Health and its organisations appears to have fallen by nearly two-thirds during the current fiscal year, compared with 2015-16.
Data unearthed by The Register has found BT is also rapidly falling out of favour with the biggest of departmental spenders, the Department of Works and Pensions and HM Revenue and Customs.
BT is slipping behind other providers like Atos and while other tech firms such as Hewlett-Packard Enterprise are suffering from a slowdown in government spend they haven't suffered as badly as the formerly nationalised telco.
The data from a Reg investigation follows last month's warning from BT to investors to expect further declines – an admission overshadowed by details of the scandal in its Italian business.
BT warned of a double-digit percentage fall in its income from the UK public sector and large corporates for January, February and March 2017, compared with the same quarter of 2016.
Monthly spending data indicates that between April and December 2016 the Department of Health and the national organisations it manages spent just £53m with BT, down from £148m in the same nine months of 2015.
The drop appears to be due to the end of BT's work as a National Programme for IT local service provider, through which it implemented software in NHS trusts.
Such work was mentioned in three-fifths of 2015-16 payment descriptions, while in 2016-17 only the centrally provided N3 voice and data network was mentioned. N3 itself will close to new business at the end of March this year – so this remaining line of business is also set to fade away.
The National Programme for IT has been winding down since 2011, and its other big legacy supplier CSC experienced a drop from £80m to £51m when comparing the two nine-month periods.
But not every supplier is suffering – IBM's income from Department of Health organisations rose from £20m to £26m, mostly down to the NHS Electronic Staff Record Enhance project.
BT, however, is also falling out of favour at the Department of Work and Pensions (DWP), one of the biggest IT spenders in government, which finally passed on a list of its top suppliers in 2015-16 under a Freedom of Information request lodged by The Register. This list confirmed figures extracted from the monthly spending data for that year with HP receiving £382m – making it the department's second-largest supplier behind facilities management provider Telereal Trillium with £580m – and £111m for BT.
The list also revealed that BT fell behind Atos, which earned £176m, reversing the two companies' positions in 2012-13 – although much of Atos's DWP income is linked to Personal Independence Payments assessments rather than IT.
Other major suppliers include IBM on £58m, Accenture on £38m and Oracle on £23m. DWP's monthly spending data for April to December 2016 shows BT gently declining, with the company receiving £71m in those nine months compared with £77m in the same period in 2015.
To be fair, BT is not the only one to be squeezed – so, too, is HPE.
The DWP data for April to December 2016 indicates that the company received just £200m in those nine months, compared with £301m for the same period in 2015. In October last year HP received more than £23m – but in November and December this appears to have collapsed to just £88,917, for software support and maintenance.
DWP is moving away from the huge deals of the past, using a wider range of suppliers and doing more work in-house. "Our new digital strategy means that we are breaking up the large contracts that have supported our IT for many years, ensuring we get the best value for taxpayers," says a spokesperson.
But while BT is not the only supplier hit by changes in government procurement, it seems to be suffering more than most.
"Public sector in the UK is particularly challenging at the moment," BT chief executive Gavin Patterson told financial analysts on 24 January. "What we normally see in our Q4 is some pick-up in public sector as public sector customers basically use up budget, and there's no sign of it this year." BT shares the UK public sector's accounting year-end of March.
"It's a combination of big contracts completing, but at the same time we're not seeing these replaced with the same scale of contracts," Patterson continued. "What we were expecting was the switch to regional buying and devolved budgets to happen faster than is taking place at the moment." He still expects local public sector organisations to increase spending, although the effect of Brexit may put pressure on budgets.
Simon Lowth, BT's group finance director, told analysts that BT was looking at how it could make more money out of public sector contracts that are nearing completion and reviewing its sales and marketing, but added: "We are obviously looking at the cost-base supporting those contracts to ensure that it is appropriately right-sized." That sounds ominous for BT staff working on its public sector business.
BT's quarterly results, published on 27 January, provided more evidence of decline. Its business and public sector revenue for the nine months to the end of 2016 was down 5 per cent after stripping out the acquisition of mobile network EE. For October, November and December, BT's public sector and major business revenue (excluding smaller companies) was down 15 per cent on the same quarter in 2015.
"We're experiencing a faster wind-down than we expected and the current market is not providing the opportunity to replace these with profitable new business," the company said.
There is little good news elsewhere in the public sector. BT did not appear at all on the top 100 suppliers to HM Revenue and Customs for 2015-16, indicating that it earned less than £560,000. The Home Office spent £17m with the company last year, but the department tends to spread its IT spending across many suppliers. BT's biggest Whitehall customer was the Ministry of Defence, from which it earned £356m in 2015-16. But its Defence Fixed Telecommunications Service deal ended last summer, where it was replaced by Fujitsu in a £550m five-year arrangement.
BT did point to the two-year extension of its Unicorn network deal with Surrey County Council, the county's 11 district and borough councils, as well as other public bodies.
But when its public sector highlight involves connecting libraries in the Home Counties, you can see why BT is dialling down expectations. ®