LONDON -- How quickly things change in the telecommunications business.

British Telecom

(BTY)

, once seen as a predator, admitted to

TSC

on Monday that it is contemplating spinning off parts of its high-earning businesses to boost its market value against the possibility of a hostile attack.

A spokesperson for BT would not comment on speculation that the company has become a takeover target following a precipitous fall in its stock price on poor results announced Feb. 2 and comments last week from Chancellor

Gordon Brown

about pushing for early deregulation of BT's local networks.

However, when questioned about the potential spinoffs, a spokesperson said: "To put it in context, when we announced our results at the beginning of February, we did say we would be looking at ways in which we could present our figures more clearly. Spinning off separate businesses is one option that BT could consider."

Businesses that BT might seek separate listings for are its mobile phone division

BT Cellnet

,

Yellow Pages

, the

Concert

alliance with

AT&T

(T) - Get Report

or

Open

, its joint venture with

BSkyB

(BSY)

.

The stock market certainly seems to think BT is looking vulnerable. Following the two successive sharp falls in its share price, BT was at one point 32% down from this year's high. It has since recovered somewhat as the bid speculation increased, and on Tuesday, shares were trading up 8.2% at 11.37 pounds.

While BT might like to blame the fall in its price on a set of disappointing figures and some ill-timed comments from the chancellor, the problems unfortunately go much deeper.

A Problem With the Line

Until now, BT has tried to grow organically rather than by spinning off businesses or by acquisition. Also, it has an array of alliances in Europe, such as with

Viag Interkom

in Germany and

Cegetel

in France, but it does not have majority control in any of them. Nor does it have an alliance with any other major telecom in Europe.

"The recent collapses in its share price are not just caused by poor numbers and the Chancellor's speech. The market is concerned about fundamental flaws in BT's stategy -- its lack of competitiveness in its home market, in its core fixed-line business, its Internet strategy and the perception that BT has been slow off the blocks in the race for consolidation in the industry," said one telecom investment banker, who declined to be named.

The fact that BT did not offer its shareholders strong solutions to these fundamental issues -- coupled with the dent in its share price -- has opened up an opportunity for U.S. and European rivals to turn predator.

The Vultures Circle

M&A bankers believe that there are a number of global telcos that would be interested in BT, with the favorite being

Deutsche Telecom

(DT) - Get Report

, the third-largest telco in the world.

Although Deutsche Telekom would not comment on a possible bid for BT, a move for it would make some sense because Deutsche Telekom is suffering from pressure similar to that experienced by BT in its domestic markets. Chief Executive

Ron Sommer

cited this strong domestic competition as a reason for the 45% profit plunge announced at the beginning of the year.

An acquisition of BT would also assist Deutsche Telekom in fighting off

Vodafone

(VOD) - Get Report

, which has arrived in Germany in a big way since the acquisition of

Mannesmann

(MNNSY)

. However, just like Vodafone is being forced to dispose of mobile phone operator

Orange

(ORNGY)

to assuage the regulatory bodies, a move on BT would spark regulation issues because Deutsche Telekom owns

One2One

, the U.K.'s fourth-largest mobile phone operator.

However, with Vodafone looking set to make a handsome profit from the sale of Orange, the disposal of either BT Cellnet or One2One may actually prove beneficial for Deutsche Telekom.

Although Deutsche is believed to be the only possible European bidder, other threats come from across the Atlantic in the form of

MCI WorldCom

(WCOM)

, Baby Bells

SBC

(SBC)

and

Bell Atlantic

(BEL)

.

So what is BT to do? A long-term defense strategy for BT would be to shore up friendly alliances to ward off any hostile attacks. Analysts say that AT&T and Spain's

Telefonica

(TEF) - Get Report

would be among the most receptive to a friendly deal with BT. Bankers close to BT confirm that it has held recent merger talks with Telefonica about a friendly alliance, but these talks broke down because of BT's insistence on control.

Whatever BT might say to the contrary, it is looking as rudderless as it did when WorldCom snatched MCI from under its nose. With the speed at which the telecom business is changing, BT cannot afford to look like the tortoise in this race.