Pat Gallagher, BT's director responsible for mainland European operations, said this week that the pace of telecomms liberalisation will affect the profitability of BT's continental units.
Although profits may be hit by liberalisation, this will be largely because of the increased investment required to compete in the open market.
"In terms of profit over the ll (continental units), we will be in profit in the near term, depending on the speed of liberalisation and on how we invest to match the pace of liberalisation," he said.
BT is creating value - for instance by developing mobile networks - but this requires large investment. However, he added, "value is not just in generating profit, but through equity positions, which we can dilute down, and generate profit, by an IPO".
Many of BT's continental units are "starting from scratch and have only been operating for 12-18 months. I would challenge any operator to be in profit at that stage," he said.
In France, the Cegetel joint venture should move into profit at the start of 1999, he said, while the Belgian unit, 100 per cent owned by BT, is already in the black.
In Germany, the Viag Interkom venture would have achieved profitability rapidly had it not been for a new DM8 billion investment programme to create a new mobile network, he said, adding that the Dutch Telfort joint venture is in a similar position.
In Spain, BT has created "huge amounts of value" in the Airtel venture, which runs the second Spanish mobile network, he said.
Completion of BT's links and cross-shareholdings with the main Spanish carrier, Telefonica de Espana, depend on Telefonica's exit from its Unisource joint venture. BT is also waiting to see how the Spanish partner responds to the merger of Worldcom and BT partner MCI. Telefonica's decision to join forces with BT was partly driven by the UK giant's plan to merge with MCI, since scuppered by the Worldcom counterbid.
"They have not left Unisource yet and until they do so I can't say what partner they will choose. They have to take the consequences of us not joining MCI," Gallagher said.
BT will exercise its call option to buy out MCI's 24.9 per cent stake in their Concert joint venture when MCI/Worldcom has completed regulatory approval in 6-12 months, he said, declining to speculate on other future partners.
Ameritech's position as controlling shareholder at Tele Danmark, another BT strategic partner, will continue as before.
"We were the first people Ameritech came to see (after its Tele Danmark deal). They said: "It is business as usual and we agree with Tele Danmark's international strategy," he said.
BT's director for regulatory affairs, John Butler, said making EU liberalisation work requires interconnection, an open licensing regime, and an independent, well resourced regulator in each state.
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