BT considers huge investor payout as directory bills soar

British Telecom is considering launching a multi-billion pound special payout to shareholders later this year. The news emerged as BT revealed that customers would have to pay 40 per cent more to use its directory enquiry service. The increase was criticised by one users' group. Chris Godsmark, Business Correspondent, reports.

BT's senior management, including Sir Peter Bonfield, chief executive, has told City analysts that the group intends to get approval from shareholders to make a buyback at its annual general meeting in July.

Speculation about buybacks helped fuel a 5 per cent surge in BT shares last week, which closed at 502.5p yesterday, up 2p on the day to equal their 12-month peak.

The briefings are the start of a wider campaign by BT to spell out its long-term strategy, following the collapse of its plan to merge with MCI, the US long-distance phones giant. The existing shareholder authority for buybacks expired when BT abandoned its bid for MCI.

A BT spokesman said the group was keeping the issue under review. He continued: "We're not ruling anything out and we're not ruling anything in."

Despite the decision to seek approval for buybacks at the AGM, analysts remain divided about whether BT would press ahead with the move, which could herald a bonanza of some pounds 5bn for shareholders.

Last autumn BT paid out pounds 2.3bn to investors through a 35p-a-share special dividend, announced with its original bid for MCI.

Executives are likely to wait until the group receives $7.5bn (pounds 4.6bn) in cash for its 20 per cent stake in MCI from WorldCom, the US phones group which is bidding $37bn to buy BT's former American merger partner. The deal depends on approval from US regulators, a process which is expected to take several months.

Any buyback would also depend on whether BT found another US partner to replace MCI. Sir Peter has surprised some analysts by suggesting that BT is in "no rush" to launch another US deal.

Sir Peter is also thought to have pointed indirectly to BT's own position as a potential takeover target since the government removed its "golden share" in the group.

One analyst said this looked like an attempt to boost BT's share price when the business was facing increasingly tough competition in the UK and was investing heavily to compete in continental Europe.

Meanwhile yesterday's announcement of a 40 per cent increase in directory enquiry prices will see the cost of a call to the "192" UK service rise from 25p to 35p from 18 February. Calls to the "153" international directory service will increase from 60p to 80p.

BT said the increase was needed to fund its pounds 84m investment programme in the service in the next financial year. The database would be expanded to include mobile, pager and fax numbers by 2000. The service lost pounds 21m in 1996-97 on sales of pounds 115m. The cost of directory enquiry services, which were free until April 1991, was cut from 45p to 25p four years ago.

"Very few residential customers regularly use directory enquiries and they shouldn't be paying for it. This is about fairness, with the people who use the service paying for it," said the spokesman.

About 60 per cent of calls to the service are made by businesses.

But Steve Thorpe, of the Telecommunications Users' Association, described the price hike as "completely unjust." He said: "The customer shouldn't be funding new technology when this is a public service."

At the same time BT is proposing to provide directory information through the Internet for free, with customers paying only the normal cost to their service provider.

Oftel, the watchdog, described the price increase as a "commercial decision" for BT, but warned that it had not been consulted about the Internet enquiry service. "We'll be looking at this very closely to see it there are any data protection problems," said an Oftel spokesman.