BT shares hit by Moody's 3G gloom

BT faces ignominy of a ratings cut

BT's (quote: BT) shares took a plunge on Wednesday after a report claimed that it could take many years for the company to make money from third-generation (3G or UMTS) networks.

The report, issued by credit rating agency Moody's, cast doubt on BT's ability to support its huge debt. BT's borrowings amount to £30bn, and the company is under pressure to cut this amount or face a humiliating lowering of its credit rating.

According to Moody's, BT's fortunes won't be boosted by third-generation networks. "We are increasingly sceptical about the expected financial returns of UMTS. The breakeven point is not likely to be reached before the fourth or fifth year of operation in even the most optimistic scenario," said the report.

BT's shares fell by almost 2.5 percent in trading on Wednesday -- a day when many high-tech stocks rose. Investors are concerned about the extent of BT's borrowing, which includes £4bn paid for a 3G licence in the UK. In an attempt to reduce the £30bn debt by a third the company has considered floating BT Wireless, or selling Concert, its joint venture with AT&T. There have also been reports that BT is planning to sell its fleet of 58,000 vans.

Although most European 3G licences have now been awarded, companies will still need to build networks. Moody's estimates that this could cost the mobile sector a further 100bn Euros (£62bn), limiting BT's ability to cut its debt. BT Wireless is already trying to encourage other network operators to share the cost of 3G rollout in the UK, which is expected to cost £1.5bn.

If BT doe suffer a credit downgrading, then the cost of its borrowings will increase. The company recently postponed an important meeting with credit rating agency Standard & Poor's, fuelling speculation that it is rewriting its debt reduction plans.

Take me to the ZDNet Road to 3G News Special.

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