Skip to main content


British Telecom's


advertising slogan says, "It's good to talk." On Wednesday, the company didn't heed its own advice.

Calling for a comment on this morning's disastrous earnings numbers that resulted in billions of dollars being knocked off its market capitalization, the phone at BT rang for a full two minutes before someone answered. And when a spokesperson did finally get on the line, he couldn't get off quick enough.

"No, we have no comment," he said. "We announced the results today and I can only refer you to them. We do not comment on our share price, or on share movements."

Any comment to make on

Merrill Lynch

lowering its recommendation on the stock to "accumulate" from "buy" and

ABN Amro

scaling back its profit forecasts for the full year to around 3 billion pounds ($4.82 billion) from 3.5 billion pounds?

Accumulate does not mean sell, he pointed out helpfully.

Amazing. And this is the same company that saw 50% of its shares offered to the British public at privatization, with the accompanying slogan, "The customer is king."

Why so reticent? BT announced its results a week early and the figures gave the market a nasty surprise. By lunchtime, BT had lost one-fifth of its market value after admitting that savage competition for customers was ripping into its profits and forcing it to axe 3,000 management jobs. It closed down 18% at 976 pence. As of 1:30 p.m. ET, New York-traded shares were off 36 7/8, or 19%, at 156 7/8.

BT said third-quarter pretax profits slumped 24% to 651 million pounds because of accelerating competition in the U.K. and hefty staff costs. It warned that fourth-quarter figures would be no better.

BT finance director Robert Brace admitted that the results were "not great," but that the problem was focused on the highly competitive U.K. fixed voice business.

Despite years of government regulation aimed at encouraging competition, BT has never really taken the newcomers to the U.K. telecom market seriously.

The BT spokesperson said that the company intended to recoup market share by focusing on three key areas: mobile, Internet and e-business. It is precisely these areas where BT has dropped the ball: It failed to respond to the threat from cable and mobile companies. And, more seriously, from a global perspective, it has not positioned itself well in European ventures.

The company's indifference toward its competition was not surprising in the beginning. Cable was a poor alternative to BT. Even if the consumer went for the price cuts that cable offered, the service was so poor that cable operators never succeeded in eating into BT's market share. All this despite a favorable regulatory environment that allowed them to offer television and telephony down the same line.

However, BT was wrong to completely ignore its new-fangled rivals. Cable operators were originally owned by savvy U.S. telecom operators who piled in to exploit the two revenue streams of voice and data.

Their shoddy image clouded their inherent value. The fiber-optic networks they build now feature the most sophisticated technology and are the fastest in the U.K. for voice, data and Internet transmission.

Microsoft's investments in






validate their bandwidth power. With the data transmission industry booming, cable can fulfill the increasing need for bandwidth. BT, on the other hand, would need to spend billions of pounds to upgrade its own copper wire network.

BT also sat back and watched the mobile telephony market boom without it. One in four people now own a mobile handset. BT's

BT Cellnet

division lags well behind



in subscriber figures. BT now has to compete for a third-generation Universal Mobile Telecommunications System (UMTS) license with more than 10 other consortia.

The damage from cable and mobile is apparent in today's results. BT said its new "Together" price plan, a simplified tariff structure modeled on those of its cable competitors, has hurt its fixed network turnover. It was also hit by a 25% reduction in the price of calls from fixed to mobile phones, forced on it by the industry regulator.

At the same time, the increasing number of calls to mobile phones and competitors' Internet services is pushing up the proportion of revenue BT pays other operators for calls terminating on their networks. Those payments nearly doubled in the nine months to Dec. 31 and were responsible for nearly half of the 17.6% rise in third-quarter costs.

It's hard to believe that a company that makes a profit of more than 650 million pounds in one quarter is in trouble. Yet trouble is what BT is in, and investors want more than just talk from the company.