For Broadcast's Broadband December 2000

British Telecommunications CEO Sir Peter Bonfield announced Nov 9 that he wants to fundementally change the structure of Britian's mightiest telecoms firm, but he only proposed partial spin-offs rather than a full breakup. At a time when BT's share price has been careening downhill, Bonfield's approach -he says he is a de-centralist at heart- doesn't seem to go far enough. Meanwhile, plans to float BT's mobile and several other businesses are coming too late, after rivals have already got there and the market appetite has waned.

Rather than leading the change that has rocked the big former monopoly telcos in Europe, BT, which has been privatised for much longer than any of them, seems to be playing catch up. Rivals including Deutsche Telekom, France Telecom and Telefonica have already hived off faster-growing Internet and mobile businesses to create separate, traded companies. BT Wireless won't IPO until the second half of next year and while its UK Cellnet business is strong, the European strategy in wireless looks shakey. It Italy BT's mobile strategy crumbled in after its Blu partnership blew up over who was going to fund its bid in the 3G license auction. Blu is left with a small 2G business and an uncertain future. BT's German partnership with Viag Interkom has been expensive and BT's minority stakes in mobile in Spain and France have been more trouble then they are likely worth. Other BT units also lack guts.

Its phone directory business Yell looks pale when compared with a rival like Italy's Seat-Tin.it. The Italian firm is considered overvalued but at least its assets include an Internet service provider and a portal. BT's portal business BT Openworld is in a start-up phase and it remains to be seen how it will work with BT's wireless portal Genie. BT's data services business BT Ignite looks the strongest of the lot, but it is also in a start-up phase and, according to Bonfield, will be among the last to IPO. This leaves the proposed network business. Bonfield says that hiving off all of BT's wires and switches into a separate company will give greater clarity to regulators, while plans to float 25% of Netco will give greater clarity to shareholders. There are several big assumptions here. First, will regulator Oftel accept Netco and under what terms? Remember that Oftel is under pressure to be tougher on BT not forcing the company to open up its local loop network to its competitors. BT's footdragging has slowed down the roll-out of services like DSL, the technology that greatly ramps up the speed that the Internet can be sent down regular phone lines. So far Oftel has only said it needs to study Netco further. Second, and crucial for BT, is how much debt can be lumbered onto this cash-generative but slower-growing wholesale Netco business?

The debt question is key because BT has racked up a lot of it, some £30 billion will be in place by March of next year. BT estimates that the IPOs of Yell and BT Wireless should raise £5 billion, while another £5 billion will be raised from asset sales in its non-core Asian markets (basically everywhere but Japan) and the possible sale of its mobile stakes in Spain's Airtel and France's Cegetel. One problem with the mobile stakes is that Vodafone is the only obvious buyer, which leaves BT little negotiating room. That said, BT does have one card to play: it could drop its threat of legal action against Vodafone and Vivendi over their mobile portal Vizzavi, which BT says was launched in contravention to shareholding agreements at Cegetel. The other big question mark is Bonfield's plan to create a holding company over all the BT businesses. He claims this umbrella will allow him to centralise cash flow in the group even as each business is given more freedom to be entrepreneurial. However, these are difficult strategies to square, which begs the question of just how deep Bonfield's de-centralist heart really is.