BT plc

Business case repair to address poor launch pricing

Business plans for the launch of Centrex and VPN services that only just met financial criteria were approved by BT’s management processes and committees. In practice, the price assumptions in the case turned out to be uncompetitive, but no acceptable business case could be made for the necessary cuts. David enabled the project to overcome this crippling position, by reviewing business case and finding ‘room’ for price cuts by ensuring a better match of revenues to costs included in the case.

The business case was based on pricing set in reference to C&W’s equivalent services, rather than the dominant solution in the market – PABX and private circuit technology. After launch it became clear that pricing was not competitive, however the pricing action required would take the business case outside acceptable returns.

David reviewed the cash flow analysis in the business case and identified that the treatment of consequential capital expenditure – non cash costs attributed to a new service when it takes up capacity– was inappropriately reducing the value of the business plan. The costs included notional impacts on the PSTN to carry displaced traffic from local exchanges, but without an offsetting revenue stream. David re-modelled the business case, ‘carving out’ the FeatureNet business as a separate company to reveal its value more appropriately. David obtained agreement from senior BT finance managers to his analysis of the situation and agreement to specific changes to the costs within the case. This positive cost adjustment was presented to BT’s investment board in a supplementary business case paper together with a complimentary proposals for price reductions and approved.

On the basis of the revised pricing, FeatureNet services were successfully relaunched and marketed.