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Thursday, 10 May, 2001, 15:38 GMT 16:38 UK
Will others follow BT?

Cleaning up: BT needs to sort out its finances
The BT rights issue should enable the troubled telecoms giant to climb out of the crisis it has found itself in.

But the sale of more shares at a discount and the company restructuring is also likely to have wide implications for other telecom companies.

The telecoms sector is one which has already been hard hit by fears of a global economic slowdown and fresh shares flooding the market could pressure prices further.

We are on the move again, the sector is in play

Gavin Barrett, PA Consulting
BT isn't the only telecom company to be burdened by debt problems and its initiatives to reduce its debt may increase pressure on companies such as France Telecom, Deutsche Telekom and KPN to follow suit.

Shares plunge

Telecom stocks have already seen their value plunge in the past year, amid fears about the amount of debt accrued to buy third generation mobile licences.

Fears also exist that the sector was overvalued to start with, with higher share prices based on hopes for future growth and profits.

News of the rights issue has already sent BT share prices lower. BT shares were trading 37.5 pence, or 6.6% lower at 530 pence in morning trade.

Some fund managers can only hold a certain amount of telecom shares, so if they decide to subscribe to the rights issue, they may have to sell shares in other telecom companies.

"You are going to see a change in portfolio structure [but] i don't think it is going to be that substantial," WestLB Panmure's Mark Davis said. "You are not going to see stocks getting punished just because BT has brought a rights issue. There is enough appetite in the market for us not to worry."

Most of BT's shares are in UK hands, so many portfolio managers can choose to switch from another FTSE 100 company into the new BT shares, Societe Generale's Jim McCafferty said.

However, European telecom funds are more likely to have to "raise money through selling other telecom assets," he added.

Rights issues galore?

The huge debts of telecom companies such as France Telecom, KPN and Deutsche Telekom means that they could consider taking a similar route to BT and launch a rights issue.

But, in some cases government ownership may mean that the companies involved are more likely to try and reduce debt by selling assets.

"The move does increase the pressure, but BT is the one that was was put on credit watch [by the rating agencies] the other telecom companies don't have that hanging over them," Societe Generale's head of telecoms Jim McCafferty said.

Gavin Barrett, a member of the management group of the telecoms and interactive media group at PA Consulting, said: "If BT can get it to happen to a satisfactory level without paying too heavy a price. Others will inevitably find it an irresistable card to play."

Fresh energy

BT's move to get its house in order might re-energise the whole sector.

"We might be coming out of a period of lethargy now that a big incumbent that had become overgeared.... has decided to do something," PA Consulting's Gavin Barrett said. "We are on the move again, the sector is in play. It will help institutional sentiment, they like action not doldrums."

The company's move to sell some of its overseas assets, notably in Spain and Japan, marks a retrenchment from its earlier expansion strategy and one also likely to be mirrored by its debt-burdened European competitors.

It has proved difficult for telecom companies to manage international expansion, with Vodafone one of the few that appears to have won plaudits for its expansion.

BT's move is indicative of moves afoot at other companies.

Other moves afoot

Deutsche Telekom and France Telecom have said they are to dispose of their 10% stake in US operator Sprint.

France Telecom has said it might dispose of their stakes in STMicroelectronics and Sema, while KPN is looking at cashing in stakes in Irish, Czech and Hungarian operators.

The companies who are suffering are those who spent heavily trying to emulate the success of Vodafone - among others - in the mobile market and invested globally to counter the loss of market share domestically, WestLB Panmure's Mark Davis said.

"A lot of the time, they haven't succeeded in doing it," he added. "What we have seen is that these companies have tried to be all things to all people and realised too late that they can't do it."

Companies are now choosing to focus on areas of best practice and in BT's case it is " their home business," Societe Generale's Jim McCafferty said.

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