In the old days, the telecoms market must have made a lot more sense to BT. Customers would wait six months for a telephone line, and then about the same for a phone, which came in any colour you liked as long as it was cream or burgundy. No one bothered complaining, because there was nowhere else to go. The internet and mobile phones were figments of sci-fi writers' imaginations.
Fortunately for customers, times have changed. Alas, BT hasn't changed quite so fast. And now it might be too late for this increasingly embattled former monopoly to survive alone.
It's been a bad couple of months for British Telecommunications Plc. Since Christmas, its shares have fallen by a third, from £15 to £10, and last month it committed itself to shedding 10 per cent of its management because of falling profits. The job cuts were a response to a 16 per cent slump in profits, blamed on falling margins in UK fixed-line calls, a falling share of internet call revenue, and the high cost of connecting fixed lines to mobile calls.
Not exactly a good sign when the telecoms sector can seem to do no wrong, and most of its rivals aren't cutting staff, but struggling to recruit enough.
Chancellor's warning shot
The latest insult to BT's pride is Chancellor Gordon Brown throwing down the gauntlet by saying he wants internet call costs to be as low as those in the US by the end of 2002. In a speech to the Smith Institute in London, Brown fired a warning shot: "[This is] a challenge our country needs met, a challenge we will continuously monitor in detail, and if not being met, will prompt us into further action."
In addition, he called for rival operators' access to BT's network to be speeded up.
BT has agreed with the telecoms watchdog Oftel to open up its network by July 2001. This so-called 'local loop unbundling' will allow rivals to use BT's copper wire network to deliver their own broadband services, such as asymmetric digital subscriber line (ADSL).
BT has long argued that giving rivals access to its exchanges in this way could create security risks, and throw up problems with integrating technology.
In effect, Brown is saying "tough". He has decided July 2001 is not soon enough: "I know that Oftel believe this timetable can be improved. Let the industry be in no doubt that I stand full square behind Oftel in these aims. We will not allow any foot-dragging here."
Oftel director general, David Edmonds, seems to agree. "I believe this timetable can be improved through close co-operation between all parties involved. I will be working closely with BT to deliver this," he said.
The reaction from the office of BT's chief executive, Peter Bonfield, opposite St Paul's was indignant. "Opening up our local access network to our competitors is an entirely separate issue. We have already agreed with Oftel a deadline of 1 July 2001 and there will be no change to this date without our agreement. That would anyway be a matter for Oftel and BT - not for the Treasury."
Giving the customers what they want
Brown's populist request is clearly in tune with the demand for cheap internet access in the UK. BT points to its Surftime package of unmetered offerings which it announced in December as proof of its goodwill, and blamed "regulatory approvals" for the delay in implementation.
That looks like small potatoes compared with the initiatives its rivals are announcing. Last week Telewest launched Surfunlimited, a £10-a-month unmetered access service so popular that users jammed Telewest's exchanges trying to get online.
Surfunlimited has boosted Telewest's internet customer base from about 50,000 to more than 135,000, according to some estimates.
"The demand we've seen has been unprecedented," said a Telewest spokeswoman. "It's testing our service, and we apologise to customers for any inconvenience."
Support for unmetered access continues to rise. A report by investment banker Durlacher found that unmetered access more than doubles the amount of time surfers spend online.
ADSL and the internet
BT is making a big deal of the fact that it is introducing ADSL services next month, offering high-speed Internet access on demand to residential and small business users over their existing copper phone lines. Alas, this may spell further problems, because ADSL could cannibalise its existing leased line revenue by effectively offering the same service for a fraction of the price - as little as £50 per month, compared to several thousand for a leased line.
BT's market capitalisation has not benefited as much as some from the internet and mobile revolution: at £62 billion, it is dwarfed by Vodafone Airtouch at £161 billion.
Takeover bid for BT?
Already the vultures are circling. Speculation says that Deutsche Telekom, SBC Communications and AT&T have all approached investment banks to prepare the ground for the biggest insult of all - a bid to take over BT.
Some institutional investors would like to see BT floating off some of its internet businesses to maximise value. Candidates might include BT Cellnet and the Yellow Pages service.
Could BT's intransigence on internet tariffs lead to a loss of independence? Well, they do say the internet changes everything.
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