BT reassures City but scares ISPs

Internet Service Providers have been spooked by talk of a cut-price broadband package from BT Retail, but investors are relaxed about chief executive Ben Verwaayen's plans

While investors have reacted quite calmly to the details of BT's new three-year strategy plan, the telco's plans for a "no-frills" broadband product have worried some members of the ISP community.

Shares in BT slipped slightly after chief executive Ben Verwaayen said on Monday that he would focus on customer satisfaction, cost control and broadband, falling from 277p to around 260p by Monday afternoon. The shares have since recovered to over 270p by Tuesday lunchtime, after some City institutions said they expected the share price to rise in the near future.

ABN Amro said on Tuesday it was sticking with its advice to investors to add BT shares to their portfolios. The banking group said it expected the stock to reach 300p. Morgan Stanley was a bit less optimistic -- saying it valued BT's shares at 280p, up from its earlier valuation of 250p.

Japanese investment bank Nomura, though, was less impressed, and has cut its BT Group "fair value estimate" to 268p, down from 287p.

Another financial group, Goldman Sachs, advised that BT's shares are approaching "fair value", but said that it was cutting its forecast of BT's earnings per share from 8.7p to 8.3p -- despite Verwaayen saying he was committed to raising the return that BT shareholders receive.

The word from the UK's Internet Service Providers, though, is less restrained. Some are understood to be deeply concerned that BT Retail's plan to launch a cut-price high-speed Internet package could cause significant damage to their businesses.

Although precise details of this "direct broadband" product won't be released until later this month, experts believe that it will give users a fast Internet connection without the various services -- such as Web space, customer support and email -- that ISPs also provide.

There is now concern that this product could force ISPs out of business, if customers decide they would rather pay less money and just get a broadband connection, and then look to other companies for additional services.

One ISP has claimed that BT is abusing its market position and is looking to win a monopoly on broadband supply.

BT has denied that the "no frills" product poses a threat to ISP, and claimed that it will encourage them to create services and content that will tempt customers onto their value-added broadband products. "This product will only give high-speed access, so users will be able to move from it to an ISP if they want extra services. We think this will encourage ISPs to create compelling broadband content," explained a BT spokesman.

BT also promised to ADSL-enable another 100 local exchanges. This news was welcomed by the government, at a time when many MPs are understood to be increasingly concerned that consumers in some rural areas have no access to affordable broadband.

"I very much welcome the confirmation from BT that broadband is at heart of their strategy and the news that 100 more exchanges will be ADSL enabled. These announcements mark another step forward for broadband roll-out in the UK," said e-commerce minister Douglas Alexander in a statement.

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