BT hooks up with the internet set

The telecoms giant has finally woken up to the future with a clutch of initiatives and joint ventures. It had to happen, says Peter Koenig

GLANCING round like a Chamber of Commerce man at an all-night rave, John Swingewood sized up the Yahoo!/BT press conference last Wednesday morning and liked what he saw. Seated at a table beside him, a young woman was making extravagant hand gestures and saying things like: "Absolutely right. That's 24-7 and 365." Seated in front of him, twentysomething cyber- media reporters fired sceptical questions like: "How's the Yahoo!/BT joint venture going to compete against the Planet Online/Dixons Freeserve internet service?" But they seemed reluctantly impressed that a BT director had shown up on turf where the dress regime called for modified skateboard gear.

Wednesday's press conference was a product launch. On 30 November the formerly stuffy BT and the ultra-dudey, California-based "web portal site" company, Yahoo! will begin offering UK customers a pay-as-you-go internet service called Yahoo Click. In contrast to standard dial-up internet services, including BT Internet itself, there will be no monthly subscription fee, usually about pounds 12. Instead, customers will pay a penny a minute in addition to local call rates. For customers using the internet less than 12 hours a month, Yahoo Click should be cheaper.

But the Yahoo Click product launch was only one piece of a larger picture emerging from BT in recent weeks. The giant company, privatised in 1984, was the 64th largest company in the world in terms of market capitalisation at the start of the year. It reported pre-tax profits of pounds 3.2bn on sales of pounds 15.6bn in the last financial year.

This clout has traditionally come from three businesses: the UK business, now under attack from UK independents such as Colt Telecom, cable companies and foreign giants like MCI WorldCom; the mobile phone business through Cellphone; and the international side through its Concert alliance. Its plans for the US foundered last year when it was outbid for MCI by the Mississippi-based upstart, WorldCom.

Now, though, the internet is revolutionising telecom technology, not only because the internet means that data transmission is becoming bigger business than voice transmission, but also because voice is increasingly sent via internet packets- like highly compressed attachments to e-mails - rather than traditional switches.

Yahoo Click is part of the general announcement that BT is getting into the internet game. The game at this point is not so much to turn an immediate profit as to drum up interest in making Britain an internet society - to justify the billions invested in internet infrastructure. "I want to go into the millennium with everybody in the UK having an e-mail address," Mr Swingewood declared over cappuccino after the press conference.

BT is late in coming to terms with the internet. The worldwide web emerged as a factor a decade ago. There are now 5 million internet users in the UK - 1.5 million of these dial up from home. Yahoo! has competed fiercely in the UK against America On Line, Excite and other web portal sites to become the default screen of choice for internet users. France Telecom is far enough along in developing the internet market in its home market to have acquired an 80 per cent stake in the Danish internet access provider WEB A/S last month.

"BT was slightly slow off the mark with the internet," said Henderson Crosthwaite analyst Paul Sharma. "MCI WorldCom was quicker to offer data transmission. Demon was ahead in offering consumer internet services. Andersen Consulting was quicker in helping large companies set up intranets."

However, Mr Sharma says, BT should be thought of as a supertanker changing course. "It's migrating from a traditional network to an IP [internet protocol] network. It's begun to offer all sorts of internet services off the back of its IP network."

BT may be late coming to the internet, but, said CSFB analyst Robert Millington, so what? "The internet is growing absolutely explosively," he pointed out.

Its initiative is welcomed by its rivals. "Anything that makes access to the internet easier is to be commended," said Mark Weeks, a spokesman for MCI WorldCom.

But BT also has problems being the 900lb gorilla on the UK block. Establishing BT Click - the plain vanilla pay-as-you-go internet service from which BT plans to create multiple versions of Yahoo Click with multiple joint- venture partners - the company won the close attention of telecoms watchdog Oftel. This was because the Internet Service Providers Association, which primarily represents small independent dial-up services, cried "foul". It complained that BT was subsidising its Click service unfairly with funds from other businesses.

Because of its size, BT has set itself the challenge of competing across the board in cyberspace. But this will put it up against smaller, often formidable, rivals willing to do anything to defend their niches.

BT is moving into the internet not because it is hot to embrace the Information Age but because it has to. Last week its UK managing director, Bill Cockburn, announced that more data than voice is travelling over BT's domestic network for the first time - internet, e-mail, e-commerce and intranets.

Responsibility for this epochal development in corporate strategy goes right to the top. "Sir Peter [Bonfield, chief executive] is pushing this," said Mr Swingewood. "He understands the technology."

BT's new strategic US partner, AT&T, is working with BT to push the two companies' internet businesses globally. Indeed, it is internationally that BT/AT&T will go head to head with the likes of MCI WorldCom. Both companies, and others, are investing to guarantee global business fast data transmission worldwide - voice will be a tiny niche add-on by 2003, according to forecasts.

Mr Swingewood is the main UK marketeer. That means he not only has the fun of hanging out in Covent Garden, he also has to nurture a portfolio of embryonic businesses.

Mr Swingewood divides his portfolio into consumer and business customers, and has created three categories of consumer businesses. He calls personal computer businesses "lean forward" businesses. These include BT Click and Yahoo Click. But he also plans to roll out pay-as-you-go internet access via such vehicles as shop catalogues.

The freshest competition comes from Planet Online, owned by Energis. In September, Planet Online and the retailer Dixons announced a dial- up internet service called Freeserve. The only cost attached to Freeserve is the phone charge for connecting to the web - plus pounds 1 a minute if you ring the Freeserve help desk.

"We think Freeserve sets a new standard for dial-up services," said John Beaumont, Planet Online's managing director.

Mr Swingewood is also responsible for BT's "lean forward" internet consumer businesses - the ones to be delivered through television sets. Chief here is British Interactive Broadcasting, a joint venture with BSkyB, Midland Bank and the Japanese electronics giant, Matushita. BIB is holding a press conference on Tuesday to announce its launch date and the names of the retailers selling their wares via the new television service.

Third, he is planning to introduce 2,500 pay phones next year at which customers can slot in credit cards and go online.

On the business side, he recently unveiled a "connect to business" internet service for small and medium-sized enterprises. "Only between 30 and 60 per cent of the SMEs are on the net, and they're not using it much," said Neil MacDonald, general manager of BT's corporate internet unit. Connect- to-business "teaches SMEs how to use the internet", Mr MacDonald continued. "It helps them do things like check the credit status of suppliers and customers."

Mr Swingewood is cagey about BT Internet and Multimedia's profit and loss statement. He was quick to attribute start-up costs to other BT units, while explaining how his new services will be in profit from day one. "Take Yahoo Click," he said. "The development costs were peanuts."

Upon closer questioning, however, he conceded he is carrying at least some of the multi-billion BT investment in IP on his profit and loss statement.

That seems only fair. This week, BT reports its quarterly results. When it does, Mr Swingewood's division will be singled out as one of the company's fast-growth sectors. BT itself is probably only beginning to realise what the internet is going to do to its business. Chamber of Commerce man or not, Mr Swingewood better get on that skateboard and ride.