Outlook: The growth just keeps coming for BT

NO WONDER British Telecom has been one of the best performing stocks in the FTSE 100 this year. Despite giving away more than pounds 2bn worth of tariff cuts over the past five years and the onset of quite marked competition in the telecommunications market, profits just keep steamrolling ahead.

As fast as competitors and regulators eat into BT's revenues, volume grows to compensate, boosted recently by rapid growth in internet traffic, data and business services. For investors, plodding old BT has all of a sudden taken on a fabulously attractive disposition. It's still a reliable source of monopoly, utility profit, but at the same time it's in the stock market's latest glamour sector, telecommunications. BT is seen as both defensive and potentially high growth - a quite rare combination.

Funnily enough, this is how the Government tried to market the company to investors when it was privatised in 1984. BT should not be seen as a utility, its sponsors said, but a high growth, hi-tech enterprise at the forefront of the information technology revolution. Fourteen years later, the City is beginning to believe the story. If unprofitable upstarts like Colt can be valued at pounds 4.3bn, BT must easily justify its pounds 52bn valuation. With the share price having doubled this year, Sir Iain Vallance, chairman, must be starting to think its time to hang up his spurs.

It is still unkindly said in some parts of the City that this dramatic outperformance is small thanks to Sir Iain, whose planned merger with MCI of the US might have had disastrous consequences for the share price. As it is, WorldCom stepped in and snatched the prize (dog?) from under Sir Iain's nose, thus saving BT from its own folly.

This is a trifle unfair, for actually the upward movement in BT's share price doesn't have a lot to do with the failure of the MCI deal. Rather, it's about a greater appreciation of the value of BT's assets in the deregulating continental market, and, of course, the company's core business back here at home.

And boy, does that core monopoly keep coining it. Competition - from mobile, cable and specialist business service providers - is now providing a real spur to lower prices and greater efficiency, but such is the growth in the market that BT is barely feeling the effect. Take internet traffic. From hardly anything a few years back, internet access is now providing BT with "hundreds of millions of pounds" of revenue a year. Since the marginal cost of this extra traffic is virtually nil, the revenue goes straight through to the bottom line.

If this sort of growth persists, it will eventually create its own regulatory difficulties. BT and other telecommunications companies in Britain charge a standard local call rate for internet access. An internet call tends to be considerably longer in duration than an ordinary voice call, so the potential revenue gain from this sort of traffic is substantial. A recent study by Pacific Bell in California showed that 30 per cent of internet calls in the US last three hours, and 7.5 per cent last an astonishing 24 hours or more.

To some extent, this is caused by the structure of tariffs in the US. By paying a higher monthly rental, residential customers can obtain unlimited free local telephony, with the result that there is no cost penalty to prolonged use of the internet. By charging per minute for local telephony, BT both regulates over use of the network, avoiding the now common congestion encountered in the US, and gains a terrific boost to revenues at the same time.

Good for BT, then, but not so good the internet user, who might reasonably think he's being exploited. It cannot be long before Oftel begins sniffing around at these new sources of high growth revenue. Until it does, BT is sitting pretty. Through recession and boom, the growth just keeps coming.

Start your day with The Independent, sign up for daily news emails
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas