British Tel Unveils Partial Breakup

British Telecom PLC is taking the next step in its restructuring, unveiling a timetable of public offerings and the sale of non-core assets in a bid to raise $US14.23 billion. But the company has stopped short of the full breakup that analysts were hoping for. Instead it has created a holding company that would remain a majority shareholder in all the units to go public.

Against a backdrop of increasing competition in its core U.K. market, BT has been under intense pressure from investors to break up. Such a move, investors argue, would enable each part of BT to concern itself only with its own needs rather than worrying about the regulatory headaches of the core operation.

BT plans to list up to 25 percent of its wireless business -- which has 17.9 million customers worldwide -- in the second half of next year. It also reiterated its plan to float a similar sized chunk of its business directories business Yell -- which includes the Yell.com arm -- by the end of March next year.

BT also intends to build Ignite, its IP backbone network, over 2001 so that by the end of that year it could be in a position for an initial public offering. The restructuring has no impact on the Concert joint venture with AT&T (T) Corp. , which BT chief executive Sir Peter Bonfield told reporters he would like to see expanded in scope.

BT's core UK telecom business is also being restructured. The creation of a new network company, NetCo, means BT's retail operation will be able to deal on an arms-length basis with the regulated network, just like any other telecom provider. That could enable BT's retail operation to create new products and services. NetCo would list separately once regulatory approval has been received.

However, there was little news to cheer BTOpenworld, the group's ISP and operator of the cellular portal Genie, which has over 1 million registrations. The unit will remain a wholly owned part of a new BT holding company. No possible date for an IPO has been given.

At the end of September, BTOpenworld had 2.1 million users, up 60 percent from last year. BTOpenworld also operates one of the U.K.'s leading paid-for, unmetered Internet access products, with nearly half a million customers.

Besides planning to raise cash through flotaions, BT is tightening its market focus to western Europe and Japan. Its global ambitions will reside in Concert. As a result, further small-scale sales are likely, and BT says that IPOs and selloffs will raise about $14.23 billion over the next year.

Currently BT has about $26.61 billion in debts, partly because of the cost of buying licenses to operate third-generation mobile services in Europe. By March 2001 it will owe $42.69 billion after recent moves to buy out some of its wireless partners. The group plans a multi-billion-dollar bond issue in the next few months.

BT's six-month results revealed the impact of the high level of debt. The company reported a sharp fall in profits, to $1.42 billion, from $2.41 billion, because of increased interest charges. The results were in line with expectations, but sales of $20.49 billion, up from $14.69 billion, were slightly better than anticipated.

The company defended its decision not to go for a full breakup. It said Thursday's plan realizes the value in the business but retains the synergies that come from having the businesses all under one roof..

The plan builds on an announcement BT made in April, when it split its business internally along product and service lines. However, many analysts had been hoping that BT would announce a complete breakup and that by this time next year shareholders would be holding up to five new shares where currently they hold just one.

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