Local loop bid set to resurface

Earthlease could be poised to put a formal offer for BT's local network on the negotiating table once the O2 demerger is out the door
Written by Graeme Wearden, Contributor

BT will be presented with a firm offer for the local loop part of its fixed network by November, according to reports on Monday.

The Guardian reports that Earthlease will make a formal bid once BT has completed the demerger of O2, its wireless division. The group, which is backed by several US financial institutions, believes that BT would welcome the chance to escape the regulatory jungle of local-loop unbundling and concentrate on its retail products.

Earthlease had an £8bn offer turned down a few months ago, but it is now understood to be prepared to increase this offer. BT insists that all its attentions are currently focused on demerging O2 -- which should be completed before the end of November.

Earthlease sources have told The Guardian that -- after recent contact with BT -- it is hopeful that its bid will be successful this time. For this to happen, Earthlease will have to persuade BT's shareholders that the deal is a good one.

BT is thought to have debts of around £17bn, compared to a peak of nearly £30bn a few months ago. Selling off the local loop, the part of the fixed line network between local exchanges and individual homes and offices, could bring in a welcome cash boost at a time when financial analysts are concerned that the current downturn in the stock market could be fatal for some debt-laden technology companies.

Some experts, however, fear that BT would be wrong to sell off the golden egg of its telecoms assets.

Lars Goddell, senior analyst at Forrester research, believes it would be more profitable in the long term to continue charging other companies to use its network, rather than becoming just another firm selling services. "BT shouldn't just resell fixed network services. Compare gross margins of between 40 percent and 70 percent for telcos controlling end-to-end service with typical retail margins of 15 percent to 25 percent [as a reseller]", Goddell explained.

Rivel telecoms companies, who have publicly blamed BT for the problems they have encountered when trying to offer ADSL services in the UK, are interested in the idea of the local loop being handed over to a new owner. AOL said that it "welcomes anything that brings more competition to the local loop."

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