The idol is smashed (9 February 2000)
|
There have been acres of text on the unexpected, and spectacular, collapse in BT's
third-quarterly profits.
We've discussed what happened amongst ourselves and with quite a number of people
elsewhere. We note that the media appear to have concentrated on the event itself
and not on what it means.
Certainly the results were bad. A particularly strong indication of this was the
drop in BT's gross profit margin from 18.3 per cent this time last year to 11.6 per
cent now. As a guide, utilities tend to have margins of 14 to 20 per cent and the
fully competitive parts of the IT industry aim for 10 per cent. So, by this crude
measure, competition is there and it is hurting BT.
But what about the future of BT?
We see it as being, potentially, very bleak. Consider
some of the problems BT has:
- The Telewest offer - unmetered Internet access 24 hours a day, 7 days a week
for £10pcm all in, due next week - wipes out BT Surftime no matter what form it
finally takes. We see no reason for anyone who wants to access the Internet with a
telephone modem, and who lives in an area serviced by Telewest, to even consider
BT. 'Anyone', it turns out, covers four and a half million households.
- When the other major cable companies, NTL and Cable and Wireless
Communications, finally merge we see no reason why a similar offer will not be
provided by NTL with the certainty that it will draw away a further segment of BT
subscribers.
- Companies offering indirect access for local and national calls - over BT lines
with calls charged to them - are not going to go away; witness, for example, the
huge Eurobell advertising campaign at the moment.
- Companies reselling national and international calls are not going to go away.
- If the first four are causing problems now, wait until carrier preselection and
local loop unbundling in the long term! The first, to simplify, makes 3 and 4 much
easier for subscribers to sign up to: the second opens up the last part of the
network over which BT has control to full competition.
- On broadband Internet access, ADSL, which BT is rolling out, is intrinsically
inferior to cable as services can only be provided within a certain radius (about
four kilometres) from the nearest telephone exchange. There is no distance
restriction with cable networks and, as the bandwidth demanded by subscribers
increases, the technical problems multiply - VDSL (the next step up) decreases that
radius to about one kilometre. Thus an xDSL network is, by definition, patchy and
the cable operators know this: at the TMA 32 conference Barclay Knapp, Chief
Executive Officer of NTL, commented that NTL services could be kept technically
in advance of anything offered by BT without too much difficulty.
- Although video-on-demand services are being developed to run over ADSL they will
have trouble competing with cable and satellite operators which have run such
services for years - so have the distribution and customer service infrastructure set up - and are slowly
adding 'modern' features such as interaction and email.
- Kingston Communications, with the same conditions to its telecommunications
licence as BT, already offers services in Hull such as unmetered Internet access
and ADSL which are a standing affront to BT, being far superior to anything it
offers or is proposing to offer.
The particularly worrying thing for BT is that it can do very little about most of those problems.
|