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Wednesday, 18 September, 2002, 16:58 GMT 17:58 UK
BT 'should be broken up'
BT exchange in Battersea
There's value in those assets, BT is told
Shareholders and customers will benefit if BT Group, Britain's incumbent phone company, has the guts to split itself up, new research has suggested.

The company has had some success in transforming itself from a lumbering incumbent into a more effective animal, Forrester Research analyst Lars Godell says in a new report.

Business as usual is not an option... given the severe crises facing the phone companies

Lars Godell
Forrester Research
But without going all the way, the company - not to mention its shareholders and customers - will fail really to benefit.

And the other old-school incumbent telecoms companies across Europe need to follow suit if they are to find a way out of the disastrous financial position in which they find themselves.

Breaking up is easy to do

The report, Mr Godell told BBC News Online, puts a figure of 23bn on the added value BT stands to gain in the future from its current reforms.

The key to current BT strategy, he explained, is layering: separating wholesale and retail operations, rather than dividing the company along functional lines.

By allowing the wholesale side to sell services well beyond the company, and retail to concentrate on looking after its customers, that has certainly delivered benefits, Mr Godell said.

But another 11bn in savings and improved performance is there to be had if the company was brave enough to go all the way.

Big beats small

"BT should be happy with this," he said. "It's in their interest."

BT's senior management are not happy about this kind of suggestion, though, reports indicate.

"For chief executives it's more fun to run a big company than a small one," Mr Godell said.

"But this is the first time anyone's pointed out that a breakup makes sense for shareholders, not just for regulators and customers.

"If BT's management is against it, they're talking for themselves, not for shareholders."


But while BT stands to gain, the biggest beneficiaries from this kind of thinking could be the other European telcos - most of which are enmired in financial trouble.

France Telecom and Deutsche Telekom, for instance, are both heavily vertically integrated, with separate units for the internet, mobiles and fixed-line phones.

Both are also partly state-owned, groaning under heavy debt and have recently lost their high-profile chief executives.

Remodelling into horizontal units and perhaps even moving towards breakup could be the answer.

"This is about convincing the shareholders, the biggest of whom are the governments, that it's not too difficult to do given the severe crises facing them," Mr Godell said.

"Business as usual is not an option, because they have wasted so much money in recent years."

Such an outcome is unlikely, however - not only because it requires far-reaching change from people who have served the same company for decades, but because the ties between senior executives and the governments in question are very tight.

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