Kevin Brady
Tel : 020 7356 5495
Director Reward and Employee Relations, BT Group Fax : 020 7356 6488
Email : Kevin.m.brady@bt.com
Ms J Drake
Deputy
General Secretary, CWU
150
The Broadway
SW19 1RX
Dear
Ms Drake,
CWU ANNUAL PAY
REVIEW 2006
Following our meeting of 8 February, our first on pay this year, I thought I would write to confirm the company’s first thoughts in relation to the 5% pay claim (including all allowances) submitted for all CWU represented grades.
The pay claim was submitted one day before BT’s Third Quarter results were issued, and it is worth picking out some of the key points from these to underline my initial response outlined at the meeting. It is true that there were some strong performances across the Group, but it has also to be acknowledged that in the commercial environment in which BT is now operating, our revenue growth in new wave areas is in itself simply not sufficient to offset declining margin from traditional revenues to the extent where we can be confident of sustainable and tangible growth for the Group overall.
There is, therefore, the need to build scale around our new wave businesses to provide this growth. Until this scale is achieved our prime focus as a company must be on cost efficiency. Our trading performance (EBITDA) is a crucial measure for BT and our investors as it illustrates our ability to deliver future profits. While the overall trend in the change in EBITDA year on year has improved, EBITDA remains lower compared with this time last year.
While there has been significant cost reduction throughout the business, we have to accelerate our efforts to achieve positive EBITDA growth. Incremental cost reductions are not enough, and we now have to deliver more for less. Our cost position remains critical in a competitive marketplace, and whilst we have reduced costs in recent years it has not improved relative to our competitors. We therefore need to consider very carefully any decisions that will impact upon our cost base, which is widely acknowledged as being too high already in comparison to a number of our European comparators. In fact we remain well behind best in class for costs vs the other EU telcos. This, therefore, will be a key consideration in relation to this year’s pay discussions.
On top of this, the company has to consider any increase in base pay in the context of the BT Pension fund. As you are aware, the company already funds annually the scheme to the tune of £330m through employer contribution, as well, of course, the additional £232m per annum previously committed to fund the deficit position. Any increase in base pay therefore, not only impacts BT in relation to increased wage bill, but also additional pension contributions and increasing liabilities to the pension fund.
I will continue to consider the claim put forward by the CWU and will respond more fully when we meet on 21 February. However, with the cost constraints the company continues to face, and with the fact that CWU represented grades are already paid significantly above external market rates, I must take this opportunity to reinforce the fact that the company cannot add unnecessarily to its fixed cost base and that this will remain a significant factor, as our pay discussions continue.
Yours
sincerely