BT losing ground in hi-tech war

BRITISH Telecommunications, the country's biggest player in the internet revolution, is in danger of being sidelined by Bill Gates and Rupert Murdoch as they muscle in on its business, according to industry analysts.

"BT has questioned whether the demand for high-speed internet access services is out there," said Steve Wallage, a principal analyst at Dataquest. "But now, with the kind of events you saw last week, the whole picture is changing."

BT acknowledged last week that the internet revolution is speeding up. The market for connected telephone, television, and internet services is "a very, very fast-moving market", said a BT spokeswoman.

But the company rejected the notion that it is unprepared to offer services at the right prices to maintain its position as the principal conduit for telephone and data services into the nation's homes. "I would suggest we're focusing attention on this area in any case," the spokeswoman said.

Last week, BSkyB announced it would give away set-top devices in a bid to corner the digital television market.

Microsoft announced it intended to acquire 29.9 per cent of Telewest, the number two cable television company, as part of a complex deal in the US.

"The moment finally seems to have arrived," said a cable television industry executive.

"The big boys seem to have decided the internet craze makes now the time to put the sale of connected phone, interactive television and the internet services on a commercial footing."

As the internet market takes shape, BT faces a dangerous shift in alliances among its partners and rivals in the hi-tech field. BT is Microsoft's biggest customer in Europe.

BT and Microsoft are further linked via a joint mobile phone venture called Nomad, while both companies have links to the US telephone giant, AT&T.

But aside from its prospective holding in Telewest, Microsoft also has a stake in number three cable television company NTL. Merger talks between TeleWest and number one cable company CWC have been announced.

"Microsoft could become the power behind the scenes in a cable television industry reduced to one big player," said an industry executive. In such a case, it remains to be seen whether BT and Microsoft would remain allies or become competitors. "That's the $64bn question," said Henderson Crosthwaite analyst Paul Sharma.

The key to BT's position in the internet revolution is its dominance of the residential phone market, which allows it to act as the gateway for all companies seeking to sell access to the internet or services over the internet into the country's homes.

But this dominance is coming under challenge. Last December, the phone regulator Oftel asked for comments on the deregulation of local telephone services. Intel, the US microchip maker, responded: "We believe that, because BT currently remains in a favourable incumbent position with approximately 80 per cent of the market share of the local loop, competitive and affordable broadband services are not being offered to individuals or small and medium- sized enterprises. Consequently, we would encourage Oftel to require that BT fully 'unbundles' its local loop."