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.