BT has announced second-quarter profits on the up but underlying trends could mean rough times ahead for the telco.
Pre-tax profits showed a rise of 7 percent, reaching £529m, but revenue dropped 2 percent, down to around £4.6bn, in what BT called "a challenging quarter".
The challenge in question, according to BT, was lower pricing and changes in telecoms regulation that saw fixed-to-mobile termination charges cut -- leaving it with 3 percent less consumer revenue year on year.
Business revenues witnessed a similar downward trend, falling by £30m compared to the corresponding period last year as a result of users switching from traditional services that are paid for by the minute to fixed rate, next-generation services such as broadband.
However, the real body blow for the telco came in the form of a significant fall in revenues -- 6 percent -- from its traditional sectors that wasn't recouped by its "new wave" businesses of broadband, ICT and mobility.
Jan Dawson, senior analyst at Ovum, believes BT should look to its German peer, Deutsche Telekom, to see how things should be done. Like BT, Deutsche Telekom has seen revenues in traditional market segments drop and, like the UK operator, has been pushing its newer services to try and pick up the slack. Unlike BT, however, Deutsche Telekom didn't let go of its mobile arm -- and it is that decision that really made the difference, says the analyst.
Dawson told ZDNet UK's sister site silicon.com that BT's mature fixed line market will have hurt the telco, with increased competition, falling prices and second lines disappearing as consumers go broadband and, while revenues from the operator's new businesses offset the decline last year, this year things didn't go so well.
Deutsche Telekom, in contrast, is sitting pretty, with chairman Kai-Uwe Ricke driving cost-cutting and revenues from T-Mobile keeping the telco's revenues on an upward path. If mobile revenues aren't factored into the equation, the company would have shown a revenue drop.
In terms of long-term implications, Dawson said BT will now be scratching its head. "The trend is away from traditional sectors and while the new wave businesses were enough six months ago, that's not the case now," he said. "Unless they speed up, BT will be in trouble. BT has been working very hard -- it's difficult to see what more they can do."
In response, BT plans to save itself £1bn by 2006 by improving its network and IT systems as well as boosting customer satisfaction.
Sir Christopher Bland, BT's chairman, said in a statement that despite the results, its focus on new areas of business is paying off. "This continues to be a challenging year for our traditional business but out new wave businesses are delivering strong growth," he said.