BT invests pounds 250m to join hi-tech online battle

BRITISH TELECOM yesterday joined the battle to provide high-speed Internet access and other advanced online services when it announced an initial pounds 250m investment in asymmetric digital subscriber line (ADSL) technology.

ADSL will transform the ability of BT to offer advanced services, including video-on-demand, over its copper wire network. The technology will also stiffen competition with cable operators, which are just beginning to offer high-speed Internet service over their mixed coaxial and fibre-optic networks.

"There's no doubt this will transform the home and the office," said Bill Cockburn, BT group managing director. "We believe there is going to be a very significant demand for this in the market."

BT plans to make the service available on a wholesale basis to 6 million households by next spring, when it will be offered within the area enclosed by London's M25 motorway and in other large cities. ADSL will then become progressively available to 75 per cent of UK households by 2002.

In an unusual departure BT will act as a wholesaler, leaving it to Microsoft, AOL, VirginNet and others to organise content and market ADSL to consumers and business. Wholesale prices will range from pounds 40 per month for 500 kilobit- per-second access to pounds 150 per month for 2 megabit-per-second access.

For the initial investment of pounds 250m, analysts expect BT to be able to install upwards of 250,000 customers. Additional installations will be less costly, but should the demand extend to millions of households, the cost to BT will be billions of pounds.

Despite the potentially huge costs, the telecoms giant had little choice other than to replace its legacy of copper-wire network with a newer high- capacity system at a cost estimated at pounds 18bn.

In the meantime, analysts expect BT's move into ADSL to provide tough competition to cable operators NTL and Telewest, which in addition to offering cable TV and telephone services, will soon launch high-speed cable modems.

Chief executive Sir Peter Bonfield also expressed the hope that BT's investment in ADSL will convince the telecoms regulator to lift remaining restrictions on residential phone prices. "This is a competitive market," he said. "We hope Oftel sees that when it comes to reconsider the residential price cap."

The ADSL launch coincided with BT reporting a 6.8 per cent rise in first- quarter pre-tax profits to pounds 772m as turnover, including contributions from associates and joint ventures, surged by 18 per cent to pounds 4.99bn. Much of the rise in sales came from booming mobile phone use, growth in interconnect volumes and surging demand for other sales and services.

However, BT stock closed 50p lower at 1,080p amid a weaker overall market and worries that increases in the company's cost base might see analysts reduce profit estimates from about pounds 3.5bn.

Robert Brace, finance director, blamed the 14 per cent rise in operating costs on the expense of recruiting new customers to Cellnet, higher payments to other telecoms operators for interconnect and the company's bringing forward of its annual staff pay review.