Project Telecom dives on warning

Shares in Project Telecom plunged 40 per cent yesterday after warning this year's profits would be at a similar level to last year's after business customers reigned in spending and mobile phone operators cut costs.

Project Telecom provides mobile and fixed-line telecoms services to the business market although more than 90 per cent of its profits come from reselling mobile services, mainly Vodafone's.

Blaming "increasingly difficult trading conditions", the company warned it had seen slower-than-expected growth during the first three months of the year.

It now reckons profits for 2003 from continuing operations will be "broadly in line" with last year's £10.2m. Analysts slashed their forecasts by about 34 per cent to that level. The shares slumped 27.5p to 42p.

Tough competition in the business market from mobile phone operators such as T-Mobile and Orange has meant Project Telecom's customer base has grown more slowly than expected while customers are also spending less, meaning that average revenue per use has fallen.

In addition, the company has been hurt by cuts in the connection commissions it gets from the operators. The mobile phone companies have cut the bonuses they pay resellers in an effort to recoup some of the income they will lose from recent telecoms regulation. Worse still, Project Telecom said it thought the mobile phone operators might look to implement further reductions in commissions later in the year.

One analyst who did not want to be named said: "The operators are basically cutting costs and Project is coming off much worse than everyone had thought. Meanwhile corporate spending is also much weaker."

Project Telecom also said yesterday that the fixed-line telecoms market remained tough thanks to a "significant supply and demand imbalance". It added: "Since the beginning of the year, the economic environment has become increasingly challenging for businesses in general and the telecommunications industry in particular."

Separately, Colt Telecom also warned yesterday that there were no signs of improvement in the market for telecoms provision to corporate customers.

Nevertheless, Colt produced first-quarter results that beat most forecasts. Sales were in line with expectations at £271.7m but an underlying, or Ebitda, profit of £34m exceeded forecasts.