Analyst Datamonitor question whether a string of acquisitions help BT significantly expand its share of the French network services market.
In the final few months of 2007, BT Global Services made two acquisitions in France which fundamentally changed the nature of the company’s business there.
BT GS invested a total of 130m euros ($194m) on the infrastructure services division of CS Communications & Systemes and Net2S, a provider of IT consulting and engineering services. The deals effectively tripled BT GS’ French headcount to 2,750, making it the company’s third largest territory in terms of employees, behind the UK and US.
As well as increasing the scale of BT GS’ French operations, the acquisitions have significantly altered the scope of its offering. Prior to the deals being announced, BT France derived nearly three-quarters of its sales from network services, covering WAN, voice, mobility and technical assistance. Now, however, the network services business generates only around a third of BT’s total revenue in France, while the professional services unit, which offers consulting and technical assistance, makes up over 40%.
The professional services side of the business has expanded due to the purchase of Net2S, while the CS infrastructure operation has been folded into BT’s Capabilities segment. This provides managed hosting, security and CRM services, and accounts for approximately 22% of BT’s French sales. Over the next few years, BT plans to grow this side of the business to around one-third of total sales, by focusing on its existing competencies and fresh areas like LAN integration and call centre platforms.
Although BT only closed the Net2S deal in mid-January, the company already has its sights set on more deals, according to Olivier Huart, the president of BT in France.
The ultimate goal is to establish BT in second place in the French networked IT services sector, which is currently estimated to be worth 10bn euros ($14.5bn). The company is currently ranked third, just behind IBM Global Services but some distance behind the undisputed market leader, Orange Business Services. It is a fragmented marketplace, with BT facing competition on the networking side from the likes of Neuf Cegetel, Colt and AT&T, and on the hosting and outsourcing side from local vendors like Atos Origin and Capgemini, as well as global giants like EDS and Accenture.
In an effort to differentiate itself from the pack, BT has narrowed the focus of its business. The company only sells to mid to large corporates and is adamant that it won’t start chasing SME business. It also concentrates on four main verticals – telecoms and media, industry and manufacturing, banking and insurance and government and does not even compete for every outsourcing deal on offer within these market segments, preferring to concentrate on networked IT.
While a continuation of its M&A strategy may see BT move up into second place, it is difficult to see where it goes from there. Orange Business Services has a stranglehold on the market, and the fact that it is a subsidiary of France Telecom gives it a significant advantage over ‘foreign’ challengers like BT. The mid-market also contains a number of strong French players. These vendors tend to have an advantage because clients, many of whom are reluctant to outsource in the first place, prefer a local partner. This is the kind of obstacle which acquisitions can only go so far towards removing.
That said, BT has spent a lot of money on these two purchases and is set to spend more, so it will need to produce results within the next six to twelve months. Datamonitor will be looking for signs that it is able to win large deals ahead of Orange Business Services.