Kate Bulkley, Media Analyst.

Viewpoint: BT's Back is to the Future.

By Kate Bulkley

Advanced TV Markets

May 23, 2001

It’s back to the future for BT. The move to split the company in two looks decisive, especially after the management dithering of the past 18 months, but the result of this radical surgery looks like a revisit of the past on one hand and a spinning off of the one business that was supposed to help propel BT into the multiple network future.

Of the two new companies that will be carved out from the breakup, the future looks particularly bad for Future BT, the optimistic name for the new company that house BT’s old businesses and its fledgling broadband businesses. Putting the traditional fixed line business and BT wholesale, which operates the UK network and is in charge of the rollout of ADSL, together with the broadband IP business Ignite and the ISP businesses of BT Openworld puts the growth potential of the latter two businesses at risk. Add to that the deadweight of Concert, the global communications venture with ATT that has never worked, and Future BT looks more like an old-style telco than one set to take advantage of fast-changing markets.

The retail and wholesale arms of Future BT are cash-generative, but these businesses are under heavy pressure from competitors and so are far from growth engines. Capital expenditure at Future BT is to be reined in because cost-reduction and debt-retirement are the main themes. This is far from good news for businesses that need cash to grow, like Openworld and Ignite.

At one time the loss-making BT Openworld was being positioned as a standalone business, but with Concert and Ignite likely to be sold off to ATT or others, it now looks like Openworld will become just a subset of BT Retail. This will likely put a defensive spin rather than growth spin on what its management has been trying to do with the portal and ISP provider.

The future looks brighter over at the second newco, BT Wireless, which after a planned demerger later this year, will include all the mobile assets BT hasn’t sold to help pay down its staggering debt pile, and its mobile portal unit Genie, which today counts about 4 million registered users.

Ironically even as BT’s new finance director Philip Hampton is pushing to give new BT Wireless a kickstart by pledging to keep most of the company debt in Future BT, debt ratings agency Moody’s has pushed back, downgrading BT’s debt because the company is divesting its higher growth mobile business. That puts more pressure on a planned £5.9 billion rights issue that BT needs to help it raise money to help pay down the £27.9 billion in debt it took on in an unsuccessful attempt to build a global business and to pay for expensive moves into wireless telephony.

Hampton told analysts and reporters that a further breakup of the core retail business from wholesales business is still under discussion, but it needs a l ot of negotiation with UK regulators who must approve any changes to BT’s core business. In the meantime BT’s CEO Sir Peter Bonfield, whose leadership is what got BT into this mess to start with, made a few vague statements about the "potential" of VOD and broadband services as growth engines for Openworld and Ignite. It was all a bit half-hearted. Clearly BT and its new team, headed ironically by the UK’s biggest TV man, Sir Christopher Bland, whose current job is chairman of the BBC, is to fix up the balance sheet. But the future is about multiple networks, and particularly broadband networks. But for the moment it looks like the future will have to wait at BT.

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