BT rings the division bell

During a year characterised so far by disappointing sales and a plunging share price, and amid rumours of a buyout, British Telecom has announced its biggest shake-up since privatisation in 1984. But will splitting into six units allow niche areas to be targeted in detail, or simply result in a splintered and confusing business model?

The £18.2bn telco is trying to shed its 'civil service culture' reputation by announcing that it will separate into five international units, focused on growing markets such as mobile communications and internet services, plus a core UK fixed-line business. The company estimates that the restructuring will cost tens of millions of pounds.

Sir Peter Bonfield, BT's chief executive, dismissed suggestions that the move was designed to fend off a rumoured acquisition. BT has been vulnerable since its share price dropped 30 per cent after poor third-quarter figures three months ago. "Our world is changing rapidly," said Bonfield. "The next wave of communications technologies will change everything."

Telecoms regulator Oftel welcomed the plans, saying: "The proposals by BT are a significant step to creating a structure where there will be greater transparency ... a key component of effective competition."

Ringing the changes
In terms of its domestic reorganisation, BT will separate its £11.7bn UK fixed-line business into wholesale and retail divisions, to simplify regulation. Creating two divisions within the fixed-line business could see BT targeting more profitable retail customers. "In competitive telecoms, market share becomes meaningless. Revenue per customer is more important. So if BT gets rid of customers that just care about price, that's better," said Eric Paulak, research director at analyst Gartner.

BT's fixed-line business is certain to continue to lose market share, so its growth strategy revolves around its four new international business units. One of these, the £500,000 directory and ecommerce business Yell, will be floated later this year and could raise up to £5bn.

The three other new international businesses have all been set up to allow easy flotation in the future. They include Ignite, a £2.1bn broadband and internet protocol business focused on corporate and wholesale markets; BT Openworld, a mass-market internet business increasingly focused on broadband services, with sales of about £50m; and the £2.7bn BT Wireless, an international mobile business which includes BT Cellnet and has a decided emphasis on mobile data and next generation services.

Concert, the remaining global business which is a joint venture with AT&T to provide global telecoms services to multinational companies, remains unchanged.

But does this matter beyond BT's borders? The reorganisation has drawn a mixed response from industry observers, and customer benefits are likely to be either subtle or some way off.

Smaller is bigger
Bill Mieran, executive chairman at the Telecommunications Users Association, was cautious. "BT's motivation is to improve shareholder value rather than customer service focus," he said. "But users may yet get some indirect benefit through more focus from the smaller units. "

Lars Godell, an analyst at Forrester Research, said: "I'm not convinced this will help users with more innovative products." Splitting BT into separate businesses might inhibit its ability to provide users with integrated services, such as a single voicemail box for mobile and fixed-line customers, Godell added.

However, BT's business units could work together effectively by using the telco's professional service businesses Syntegra and Syncordia, said Gartner's Paulak. "The plan is there," he said. "The question is how well they can do it in growth mode."

While most of the motivation for the move was to appease the City, customers will also see benefits, Paulak argued. "The move is good for customers if BT can concentrate its service offerings, get greater control and grow across Europe," he said.

But even the optimistic Paulak admits that users won't see such benefits quickly. Unfortunately, time is one thing BT doesn't have at the moment.