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Thursday, 10 May, 2001, 14:10 GMT 15:10 UK
Q&A: What now for BT?
The UK telecoms giant British Telecom is facing its biggest corporate upheaval since the company was privatised in 1984. Crippled by a 30bn debt burden, the firm forced out its chairman, sold off a string of subsidiaries and had to go cap in hand to its shareholders and ask for fresh money.

BBC News Online investigates how bad things are at BT, and whether the company can turn the corner.

What's gone wrong at BT?

There's a one-word answer: Debt.

During the past few years, BT tried to transform itself. It wanted to become a global player in the telecoms landscape, instead of being a declining former monopoly fighting to keep its share of the domestic market.

This strategy has gone badly wrong - for three reasons:

  • BT failed to find a strong partner. Plans to merge with a strong transatlantic partner like MCI fell apart, and the Concert alliance with AT&T never fulfilled its promise.
  • BT's plans for international expansion also ended in tears. It paid a lot of money to take minority and majority stakes in telecoms firms across the world, in Germany, Spain, Japan and Malaysia to name a few. That cost a lot of money, but did not deliver the hoped for returns
  • Finally, BT invested heavily in third-generation mobile phones (3G). It paid billions of pounds to secure the licences to provide such services, will have to pay even more to create the infrastructure, but will not see any 3G revenue for years to come.
All this has cost a lot of money - about 30bn. At the same time, BT's share price has declined dramatically, from a peak of 15.13 at the end of 1999 to now less than 5.50.

Shareholders have become impatient, and this has forced the changes.

So how does BT attempt to get out of the financial mess?

Again, the answer sounds deceptively simple: Raise money.

However, it's not quite that easy. BT has begun to sell its stakes in a number of telecoms firms around the globe, in Japan, Spain and Malaysia, to name a few.

It also tries to get extra cash through a so-called "rights issue". BT shareholders are asked to give the company some urgently needed cash. In return they get more BT shares, but at a hefty discount.

And BT has proposed to split itself up. Yell, the directories division once known as plain old Yellow Pages, is set to float on the stock exchange.

BT Wireless is for sale as well. This is BT's mobile phone division, which includes not only the UK's BT Cellnet, but mobile phone operators in Germany and France as well - and owns BT's stake in 3G phones.

British Telecom is likely to keep a substantial stake in BT Wireless, but details of the offer have not been worked out.

Will it work?

That's the big question. BT's debt will undoubtedly be reduced sharply, making it easier for the company to plan new investments.

At the same time, BT's share price is taking a hammering, as the markets adjust the firm's share price to the "dilution" of the rights issue.

Once the rights issue has been completed, investors will own a larger number of BT shares, but as the company still has the same size each share will be worth less.

That will make it difficult for BT to fund further acquisitions cheaply by paying with its shares.

But the big issue is strategy.

A year ago, telecoms experts sang the mantra that top telecoms firms would have to go global to survive.

But the majority of firms with global ambitions are now in deep financial trouble, making cutbacks or scouring the markets for fresh capital.

After being a global player yesterday, BT now is a medium-sized regional player.

BT is at the crossroads. It may be vanquished by its larger competitors - or it may come out triumphant, because it cut back just in time.

The telecoms industry is in so much turmoil that it is difficult to tell.

What does it mean for BT customers?

For residential customers, not much. If BT and its rivals keep getting squeezed by the markets, telecoms firms may find it necessary to raise their prices.

For BT Cellnet customers, not much will change either. Worldwide roaming will still be possible.

Any impact will come in the long-term, and will be closely linked to BT's competitiveness in the telecoms industry.

Depending on the fate of BT's Concert alliance with AT&T, large business customers may be the first to feel the difference.

In the short and medium-term, though, customers will not have to worry.

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See also:

10 May 01 | Business
Pressure grows on BT rivals
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