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Thursday, 26 April, 2001, 09:58 GMT 10:58 UK
The rise and fall of BT
British Telecom, hampered by a huge mountain of debt and a share price less than a third of its level a year ago, is fighting its greatest crisis since privatisation in 1984.
Shareholder confidence had virtually collapsed in the telecom giant's management.
The resignation of Sir Iain Vallance - linked in many shareholders' minds with the company's problems - has provided at least a temporary boost to the company's share price.
But it is still unclear what strategy his successor Sir Christopher Bland will adopt to turn the troubled giant around.
Falling share prices
BT had hoped to float or demerge its BT Cellnet wireless and Yell yellow pages division, to help cut its estimated £30bn debt mountain by at least £10bn.
But those hopes have been dashed by the collapse in stock market valuations - meaning that BT would get a much lower price than it wanted if it tried to sell off these sections now.
Plan B for the board is thought to be asking shareholders to buy a further £5bn worth of shares, money which would be used to cut the debt.
The big institutional shareholders had said they would only do this if there are changes at the top of the former state monopoly, so Vallance's resignation may pave the way for this share sale.
The problem for BT is that if they do not cut their debt, they will see their credit rating down graded, which in turn will increase the rate of interest it will pay on loans.
That the company is in such crisis seems astonishing, given that just five years ago, BT was the fourth biggest telecoms operator in the world, measured by stock market value.
So what has gone wrong?
The company has also blamed the cost of investing in the Japanese and Irish telecoms markets and the expense last year of taking over Securicor's minority stake in its mobile phone division, BT Cellnet.
City commentators also cite BT's rapid expansion - taking stakes in a raft of overseas telecoms firms.
In the past year, BT's profits have crashed along with its share price, a far cry from the days when the firm was seen as one of the great hopes of privatisation.
From monopoly to competition
For much of this century, British Telecom ruled unquestioned as a monopoly in the UK market.
It was only in 1981 that the British Telecoms Act brought this to an end and put in its place a duopoly, where BT competed with Mercury, a Cable & Wireless subsidiary.
The next step along the road to full competition was privatisation.
In 1984, BT helped to revolutionise the image of share ownership as more than 2m small investors bought stock.
But it was not until March 1991 that full competition hit the British market, effectively bringing to an end the duopoly shared by BT and Mercury.
The watchdog bites
With the liberalisation of the phone market came renewed pressure on BT from the telecoms watchdog Oftel to open up more of its network to competitors and cut its prices.
But the regulator stepped in, most recently a month ago, when Oftel proposed further price cuts.
BT is also currently engaged in a heated battle with its competitors over providing access to its local exchanges, an important step in allowing them to introduce high-speed internet services.
Failure in the US
As competition flooded the UK market in the 1990s, BT increasingly found itself looking further afield in an attempt to boost the revenues it was losing at home.
One obvious market to set its sights on was the United States. But where its mobile rival Vodafone succeeded - in January 1999 it took over the American mobile firm AirTouch and later that year successfully established a link-up with Bell Atlantic - BT's ambitious attempt to merge with MCI in 1997 failed at the last moment.
MCI had issued a profits warning, and while BT tried to renegotiate the terms of the merger, its rival WorldCom, a rapidly growing and aggressive US operator, managed to snatch the firm from BT's grasp.
In July 1998 BT attempted a comeback, clinching a deal with America's AT&T to form a $10bn global joint venture.
But this venture did little to address the fundamental problem of BT's limited reach and lack of size.
BT has also made several attempts to consolidate its position on the European market - some more successful than others.
The group's wireless business includes controlling interests in Germany, Ireland and Holland, as well as Cellnet in the UK.
But in October this year, the BT-backed Blu consortium failed to win a 3G mobile licence in Italy because of quarreling among shareholders.
And talks about a merger with Spain's former phone monopoly Telefonica also ran aground.
The company also has minority stakes in non-core operations in Asia: India, Japan, Malaysia, South Korea and Hong Kong.
Some analysts argue that in attempting to be a player in so many markets, BT has simply overstretched itself. Their criticism appears to be vindicated as BT has now announced that it will sell some of these global assets.
Ringing the changes?
Inevitably some of the blame for BT's woes has been laid at the door of chief executive Sir Peter Bonfield and chairman Sir Iain Vallance.
They are accused of not moving fast enough to respond to the rapidly changing market conditions and not to go far enough in restructuring the business.
Calls for new blood at the top were met to some extent in October when it was announced that finance director Robert Brace would step down. Brace is being replaced by Philip Hampton who helped break-up British Gas.
But some will still want the company to go further. As one city analyst put it: "Can you think of another company where over five or six years it was spiralling down and then it all of a sudden started spiralling upwards under the same management?"
Whether BT's restructuring plans will be enough to turn around its fortunes remains to be seen.
Analysts have given mixed verdicts. "It doesn't look as if they've done anything," said West LB Panmure telecoms analyst John Tysoe. "They could have separated the businesses totally."
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