BT shifts focus to IT services as profits tumble

The company has posted a dissapointing set of results this quarter due to an underperforming BT Wholesale
Written by David Meyer, Contributor

BT's most recent results show a thirty percent drop in profits over the last year.

The results, which cover the third quarter of the last financial year, show pre-tax profits for the quarter to have been £447m after "specific items" and leaver costs. The corresponding quarter in the previous financial year had shown profits of £639m.

"Based on [year-on-year comparisons], the only conclusion that you can draw is that the growth in BT's performance is slowing," said BT analyst Mike Cansfield on Thursday. Cansfield suggested that, as BT Global Services was the company's "star performer" at the moment, it was BT Wholesale that was underperforming.

"The explanation is due to price reductions in broadband, migration [through local loop unbundling] and a decline in low-margin transit business. So, a combination of factors, all explainable and understandable, have had an impact on BT Wholesale," Cansfield said.

Scott Morrison, a research director at Gartner, agreed that BT Global Services was "the motor by which BT expects to grow". He also noted that BT's core infrastructure upgrade programme, 21CN, was now allowing for cost savings that partially compensated for the drop in revenue from BT's traditional telecoms business.

A BT spokesperson said on Thursday that it was unlikely that BT Wholesale would increase its prices to boost revenues. "The pricing issue is an irrelevant question really," said the spokesperson. "What you'll see more of is BT Wholesale shifting its focus to managed services." However, the spokesperson refused to completely rule out price rises.

Morrison also said it was unlikely that wholesale rates would be increased, but he suggested that, as older wholesale products are retired, the newer ones might be more expensive for BT's ISP customers. "There might be new service options which will be at a higher price," he said. "But the market in the UK is now sufficiently competitive in the wholesale space that to raise prices would cause an exodus to, for instance, Cable & Wireless, Easynet or Carphone Warehouse."

Morrison recommended that BT pay more attention to differentiating quality of service for different types of customers, and create more innovative services that it could use to boost its flat performance in the business mobility sector.

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