Cable cuts into BT's home base

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The Independent Online

Industrial Correspondent

The number of BT's residential lines fell for the first time in the 12 months to September in the face of increasing competition from cable companies. The company is losing about 50,000 customers a month to cable firms that offer telephony services, but says thousands of customers are also returning to the BT fold, resulting in a much smaller net loss.

The decline in residential lines was 0.2 per cent on BT's customer base of about 20 million, but will nevertheless be seen as a victory by the cable sector. Michael Hepher, group managing director, promised to step up the fight against cable. "We are convinced our customers under-appreciate BT and are under-aware of the total picture. We have a good story to tell and we need to tell it better than in the past," he said.

The lacklustre performance in the residential sector failed to dampen BT's peformance in the first half of the year, when pre-tax profits rose 7.6 per cent to pounds 1.6bn. Earnings per share rose to 16.8p from 15p a year earlier and the interim dividend rose 5.7 per cent to 7.45p.

It also emerged that BT will fall short of its target of 10,000 voluntary job losses in the full year, with the total now expected to be about 8,000.

Sir Iain Vallance, chairman and chief executive, warned of the combined pressures of increased competition, tightening regulation and slower growth in the UK economy. Sir Iain said call charges in the UK were now among the lowest in the world and that the "harsh regulatory regime" was inhibiting the company's progress. "The regulatory vice is unlikely to ease in the near future," he said.

The company is in negotiations with the regulator, Oftel, over the future structure of the industry and also, in the near future, faces a review of its current price cap. Sir Iain said: "We welcome and encourage fair competition, and we support the need for an independent, accountable regulator.

"However, we will continue to fight proposals which are not in the interests of either fair competition or customer choice and which would, we believe, damage the interests of our shareholders."

Sir Iain also sought to dampen speculation over BT's alleged "deal" with the Labour Party concerning free connections for schools in return for more freedom to deliver entertainment over its wires.

"There is no deal as such between BT and the Labour Party. But there is an understanding that, if they get into power, they will adopt the unanimous recommendations of the all-party Trade and Industry Select Committee on allowing BT and Mercury to compete across the board with the cable TV monopolies," he said.

BT's turnover grew by 2.9 per cent in the six months to 30 September, helped by an increase in business exchange line rentals and the continuing boom in mobile telephony.

Investment Column, page 23