British Telecom divides into six in biggest shake-up since privatisation

BRITISH TELECOM yesterday embarked on its biggest shake-up sinceprivatisation, splitting the group into six businesses and unveilingplans to float its internet and e-commerce activities.

Sir Peter Bonfield, BT's chief executive, denied it was adefensive move designed to ward off a hostile takeover, insteaddescribing the reorganisation as a way to "get ahead of the next wavein communications".

The radical restructuring will see BT split its UK wholesale andretail fixed-line businesses into separate operations by the end ofthe year and create four new divisions, one of which, the YellowPages and e-commerce business, will be floated later this year with aprice tag of between pounds 5bn and pounds 10bn.

Each of the businesses will be headed by a new chief executivewith a new management team. This is expected to double the number ofsenior managers on share-bonus schemes to around 1,000.

Explaining how BT would decide which businesses would get separatequotations, Sir Peter said: "Where there is a sustainable benefit ...then list the business. It's not about getting a short-term pop inour share price."

BT shares rose 4 per cent, ending the day 44p up at 1,133p,valuing the company at pounds 74bn.

BT has not ruled out a separate stock market listing for itswholesale UK fixed-line operation - the core regulated network oflocal and long- distance lines.

"This is a complex change," said Sir Peter in response tocriticism that the company has moved too slowly in the fast-evolvingcommunications market. "Nobody else has done this and it will takesome time. This is not rearranging the deck chairs. This is a radicalreorganisation of the company and I think most people will see itthat way."

Analysts welcomed the moves, but said they had been a long time incoming. "It's a positive piece of news, but probably a little late,"said Richard Jagger at Prudential Bache. "If there aredisappointments it is that some IPOs are to be delayed," noted KarenEgan at Lehman Brothers.

One management casualty of the reorganisation is Bill Cockburn,managing director of BT's UK operations. He will assist in thetransition, but will retire when the process is completed towards theyearend.

In a move to begin consolidating its many minority internationalinterests, BT said it would take 100 per cent control of Dutch mobileand internet operator Telfort by paying pounds 1.2bn for the 50 percent stake held by railway operator Nederlandse Spoorwegenin. BT alsounveiled plans to spend pounds 4bn over three years to build internet-related businesses and services.

Upon completion of the revamp, BT is likely to seek flotations forthe three other new business units which will be organised aroundproduct functions rather than by geographic areas of operation. Thebiggest is BT Wireless, to be headed by Peter Erskine, which willcombine its mobile assets, including BT Cellnet, in 14 countries.Ignite, the second largest new unit, will be led by Alfred Mockettand will group together BT's wholesale and corporate broadbandinternet interests in the UK and abroad. BTopenworld, to be headed byAndy Green, will refashion the company's mass market retail Netbusiness and move to build market share in the residential broadbandmarket. Yell, which combines directory and e-commerce applicationslike yell.com, will be headed by John Condron.

Potentially the most far-reaching change is the plan to split BT'sUK fixed line business, which accounts for around two-thirds of itsannual sales of pounds 17bn, into wholesale and retail arms by year-end. This would see charges for wholesale network services and callconnection subject to continued regulation by Oftel. But brandedretail services could be positioned outside the regulatory system,freeing BT to speed product innovation and improve operating profitmargins. "We think Oftel will focus more on the wholesale business,"said Sir Peter. "The retail business will be governed by theCompetition Act."

Oftel expressed measured approval of BT's plans to simplify itsoperations: "Transparency is a key component of effectivecompetition." The watchdog is studying future controls on retailprice and network charges.

In the near-term, BT residential customers will see little change,but the company hopes the new structure will spark innovation. "Whatwe think customers will see is faster product development and (witheconomies of scale) further price cuts," said Sir Peter.

Robert Brace, finance director, said the revamp would cost lessthan pounds 50m.

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