BT warns on debt as profits tumble 27 per cent

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The Independent Online

CUT-THROAT COMPETITION at home and higher interest costs to fund new ventures abroad took a heavy toll on British Telecom yesterday when the company reported its biggest ever quarterly decline in earnings.

CUT-THROAT COMPETITION at home and higher interest costs to fund new ventures abroad took a heavy toll on British Telecom yesterday when the company reported its biggest ever quarterly decline in earnings.

That coincided with the admission that net debt, which nearly doubled over the quarter to £15.4bn, would swell to over £20bn by early 2001.

Declining earnings in BT's core phone business saw pre-tax profit for the quarter to June dip 27 per cent to £561m. Total sales, spurred primarily by fast growing associate units abroad, advances at Cellnet and increasing payments from other telecoms carriers, pushed quarterly sales up by over a third to £6.8bn.

Reflecting the swift pace of change sweeping the telecoms industry, Sir Peter Bonfield, chief executive, said the company would decide by March on whether to split itself into several separately quoted companies. In April, BT reorganised into four business units and undertook to split the companies wholesale network business from its retail service arm. The move was widely interpreted as a prelude to further sweeping changes.

Sir Peter, however, moved to downplay the likelihood of a radical demerger. "It's not exactly proven that that's all upside," he said. "Maybe we are a little more cautious. It's not a 'no-brainer' [to float off each unit].

"Part of the reason we went through the restructuring was to make clear the value in BT," he said. "Do we think there is unrealised value in BT? Absolutely," he added.

The comments came as BT appointed ABN Amro, NM Rothschild and Morgan Stanley Dean Witter to advise on the flotation of Yell, the Yellow pages division.

The initial public offer, which is expected to value the business at around £5bn, is to go ahead before Christmas with likely US and UK listings.

Concert, BT's multi-national business services arm co-owned with AT&T, could be the next unit sent to market. Sir Peter said management had been focused on getting the venture running, but professed to being "open minded" on a market listing in 2001.

Meanwhile, talks are continuing with the Department of Trade and Industry and the Office of Telecommunications about separating BT's wholesale and retail telephone arms. "The general feeling from Oftel and the DTI is that this will have competitive benefits for Britain," Sir Peter said. He also extended a plea for lighter regulation in emerging business areas. "In the new areas - broadband, mobile, internet - BT's market share is low."

BT's debt rose after it paid £3.2bn for full control of Cellnet, its mobile arm. It also invested heavily overseas and anted up over £4bn for a third-generation mobile phone licence in Britain.

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