COMPANY OF THE WEEK: British Telecom

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The Independent Online
BRITISH TELECOM said second-quarter operating profit rose 18 per cent to pounds 563m from a year earlier as growth in internet, multimedia and mobile phone services surged.

BT has spent pounds 1.1bn this year upgrading its networks to handle demand for data services - a move that helped boost sales of data services 23 per cent in the quarter. The company is betting that the investment will fuel growth even as the economy slows and competition cuts its share of the domestic phone market. Second-quarter sales overall rose 10 per cent to pounds 4.4bn on the year.

The company's shares, however, fell 4 per cent, to 808p on disappointment that the company wasn't paying a special dividend from the pounds 1.1bn profit it made on the sale of its stake in MCI Communications. Pre-tax profit rose 18 per cent to pounds 805m, beating analysts' forecasts. Including the gain from the sale of the MCI stake, pre-tax profit was pounds 1.88bn.

Chief executive Peter Bonfield said he wouldn't rule out a share buyback or special dividend, although both were unlikely now. The company, he said, is starting to see some effects of an economic slowdown, particularly in international calls, where revenue slumped 7 per cent.

Demand for internet and other data services is growing at more than 20 per cent annually, he said. That's driving the need for other BT services such as additional phone lines. Voice services are growing about 5 per cent annually. BT said last week the volume of its data traffic exceeded voice traffic for the first time.

BT's joint ventures in continental Europe, formed to compete in the newly deregulated markets, were the biggest drag on earnings because of start- up costs. BT's planned $10bn (pounds 6bn) venture with AT&T, the top US phone company, to offer voice, data and internet services to large companies around the world is under review by EU officials.