Attempting to slash its debt load by as much as $14 billion and boost sales, which have fallen by as much as 50 percent this year, British Telecommunications plc announced a companywide restructuring plan that includes plans to sell off up to 25 percent of the company’s wireless holdings.
BT’s decision came the same day it reported financial results for the quarter ended Sept. 30, showing a drop in net income from $895 million last year to $388 million this year, with interest expenses rising from $98.7 million a year ago to $449 million this year. While the results beat analysts’ estimates, the restructuring is seen as a way for BT to protect its high credit rating. In addition, BT hopes to free up additional cash to pay for third-generation wireless licenses.
The restructure plan includes the creation of a new BT holding company, BT Group; accelerating the spinoff of its wholesale and retail businesses, NetCo; floating a 25-percent stake in BT Wireless next year and up to 25 percent of its Yell division by the end of this financial year; developing BT Ignite so it can be spun off by the end of 2001; and tightening its market focus in key regions around the world, including Europe and Japan.
“The businesses will be better placed to prioritize and pursue the main opportunities for growth which will be in wireless, broadband and IP, and within Western Europe and Japan,” said BT Chief Executive Officer Peter Bonfield in a written statement.
The restructuring decision comes on the heels of fellow telecommunications companies AT&T Corp. and WorldCom announcing similar restructuring plans in the past few weeks in attempts to lift their sagging stock prices.
“This action will reshape the U.K. telecom market and will allow us to operate as a completely different kind of company,” Bonfield said. “We’re going to be faster, more flexible, focused and better able to serve our customers and reward shareholders in what is definitely the most dynamic and exciting of sectors.”
BT’s plan to sell up to 25 percent of its wireless interests next year, which include holdings in England, Germany, Ireland and the Netherlands, are expected to net the company between $11 billion and $14 billion. The company said it is in talks with rival Vodafone Group plc concerning BT’s stake in Vodafone controlled Spanish wireless company Airtel.
BT said the NetCo venture, which will include its regulated business selling access to its fixed-line network, would remove any perceived conflict between NetCo and the rest of BT by operating at arm’s length and allowing the new division to focus on meeting the needs of the other licensed operators and service providers.
“It goes without saying that the final form of NetCo, and the arrangements for the listing, will take into account the needs of all of our stakeholders,” Bonfield explained. “In my view, the creation of NetCo should reduce the need for those aspects of regulation which derive from our current vertically integrated structure.”
While BT said it plans to reassess its international holdings, with concentration on its Western Europe and Japanese holdings, it had no immediate plans to dispose of its shares in telecom carriers in Asia. BT currently holds 24 percent in South Korean mobile-phone manufacturer LG Telecom, 33 percent of Malaysian telecom carrier Maxis Communications Bhd, 18 percent in Singapore’s Starhub, 44 percent of New Delhi’s Bharti Cellular Ltd. and 20 percent of Japan Telecom.
“We’ll now start to discuss with our partners across various parts of the world how we’re going to move forward, which obviously could lead to disposals,” BT spokesman Martin O’Connor told Reuters.
In addition to selling assets, BT said it will cut an additional 2,000 jobs by the end of this year, in addition to the 3,000 positions the company eliminated earlier this year.
“We need to try to get the company moving faster and control the debt,” said Bonfield. “We’ll need fewer people, and the same trend will continue with job cuts.”
Even with the restructuring and job cuts, BT warned that pressure on its earnings would continue for the next three years. BT’s stock lost $5.75 per share last Thursday, the day the restructuring announcement was made, and was down an additional $1.75 at RCR Wireless News press time to $102.19 per share.
