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News > International
BT 3Q slides, stock tanks
February 2, 2000: 11:14 a.m. ET

Telecom operator warns of impact from price cuts; shares down 18%
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LONDON (CNNfn) - British Telecommunications shocked investors with a 23 percent slump in third-quarter profit Wednesday, and warned it would cut 3,000 jobs - 10 percent of its management-level positions - to get back on track.
    BT shares collapsed 18 percent to 974 pence in London, wiping $22.5 billion from the company's value, after saying net profit in the quarter to the end of December fell to 453 million pounds ($729 million) from 592 million pounds. Sales in the quarter rose 19 percent to 5.9 billion pounds, aided by the contribution from new businesses, but fierce price competition in BT's traditional, domestic fixed-line telephone operation put profits under pressure. Earnings per share for the quarter fell 24 percent to 7 pence, and drooped 34 percent to 24.9 pence for the first nine months of fiscal 2000.
    "The trend wasn't a surprise," said chief executive Peter Bonfield in an interview with CNN. "We had a tough quarter...we were worse than forecast and from that point of view we got it wrong."
    "This is a powerful signal that BT must try harder, they've clearly decided to bite the bullet," said Raymond Hill, an analyst at Duff & Phelps.
    Bonfield admitted as much, telling CNN: "We've got to fight back in the market."
    The earnings announcement was brought forward by a week because "we wanted to tell the market that earnings were at the bottom end of expectations," a BT spokesman said.
    "These figures undershot forecasts by 3 to 5 percent," ABN Amro
    analyst James Ross told Reuters. "The main negative is pressure on margins due to increased wholesale traffic and call prices coming down."
    BT is also paying higher interest charges as a result of last year's 3.15 billion-pound purchase of the 40 percent of cellular operator BT Cellnet that it didn't already own.
    
No Internet IPO

    Fears of rising competition have hit other former state-owned telecom carriers in Europe in recent months, but many of them have been able to ride out the storm because investors have focused on their attractive, but nascent Internet assets. The prospect of a public offering of Deutsche Telekom's (FDTE) internet access arm has buoyed the German company's shares recently, while Spain's Telefonica enjoyed a huge hit with the flotation of its subsidiary Terra Networks.
    "Nobody's talking about an IPO [for BT's Internet business]," commented Hill, pointing to the large number of access providers in Britain. Deutsche provides Web connections to around 60 percent of online Germans, while BT can muster a U.K. share of just 7 percent.
    Bonfield also warned that the situation is unlikely to improve in the short term. He indicated that the fourth quarter would also be "tough", with earnings likely to be around the same level as in the third quarter. That would mean full-year pretax profits of less than 3 billion pounds for the fiscal year ending Mar. 31, down almost a third from the 4.3 billion pounds earned in fiscal 1999.
    The company is feeling the pain from tariff cuts such as a 25 percent cut in fees for calls from land lines to cellular phones.
    Domestic call volumes are growing at an annualized rate of 11 percent, the fastest pace in a decade, thanks in part to the increasing use of the Internet.
    BT expects to implement the 3,000 managerial job cuts over the next six to nine months, at a cost of 350 million pounds.
    What good news there was for the London-based company came from its mobile business: BT Cellnet, the second-biggest mobile-phone operator in the U.K. after Vodafone AirTouch (VOD), added 1 million new subscribers in the quarter, taking its total to 7 million, an increase of 72 percent from a year earlier. Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.