BT announces radical restructuring

BT has outlined a radical restructuring plan, involving the partial sale of many of its assets, which it hopes will tackle its mounting debt problems.

The announcement came as the telco reported that its second quarter profit after tax had dropped to £295m from £618m in the same period last year.

By 2001 BT plans to reduce its debts by £10bn through disposals and listings. This will include the flotation of 25 per cent of BT Wireless next year, and 25 per cent of its directory business, Yell, by the end of the financial year. The restructuring calls for the creation of a group holding company, under which many of BT's businesses will be managed.

BT will create a networking company, NetCo, which will be managed independently and groomed for flotation, providing regulatory approval can be obtained. The telco also hopes to develop its broadband business, BT Ignite, so that it too can be listed.

BT also said it would focus on Western Europe and Japan, disposing of the bulk of its assets outside these countries. According to the telco, its primary route to providing global communications for its customers will be through Concert, a joint venture between BT and AT&T.

Sir Peter Bonfield, BT's chief executive, described the plan as a "radical and unprecedented restructuring" of its business.

Explaining the rational for its change, Bonfield said: "The businesses will be better placed to prioritise and pursue the main opportunities for growth which will be in wireless, broadband and IP, and within Western Europe and Japan."

BT's debt stands at around £18.7bn and is expected to mushroom to £30bn by next March, due to acquisitions and the cost of obtaining a third-generation mobile licence.

Tony Lavender, principal consultant at analyst Ovum, said the restructuring, which he described as overdue, would help restore City confidence in BT in the face of mounting debt and increased competition.

"BT can no longer rely on its legacy business and it needs to become more focused on the markets in which it is operating. For example, BT has been too cautious about developing IP services within the framework of its old business," said Lavender.

"It will be now be managed as a group of companies under an umbrella rather than the as an holistic, vertically integrated company," he said, adding that the restructuring is only the first step in a larger plan to make BT more flexible.