More calls for BT's break-up

Analyst group Forrester has joined the long-running debate on BT's future by claiming that it makes financial sense for the company to split into several parts. In a report published on Tuesday, Forrester recommended that BT should split its retail business, its network operations and its research side in four years time. A three-way separation could yield up to £11bn extra value for shareholders, said Forrester. According to senior analyst Lars Godell, the newly independent business units created by a break-up would be able to achieve higher revenues while running up lower costs, and would also be able to give more attention to innovation. Should such a split go wrong, though, Forrester has calculated that it would cost the company £5bn. "In 2006 a break-up -- a separate listing of BT's retail, innovation, and network businesses -- will be seen as a natural evolution, not revolution inside BT. And while a break-up carries significant risks that could destroy more than £5bn of shareholder value in a worst-case scenario, Forrester thinks the arguments against it don't stack up," said Godell. Although calls for BT to be broken up are nothing new, Forrester's argument is interesting because it claims that such a move would actually be in the interest of the UK's incumbent telco. Many of BT's critics have been arguing for years that the company should be split up because -- they claim -- it has deliberately acted in an anti-competitive manner in its approach to issues such as local-loop unbundling and the rollout of broadband networks across the UK. BT denies these charges, and insists that break-up is neither necessary nor desirable, but the idea is understood to be popular with a number of influential MPs, and possibly even Lord Currie, the new chairman of Ofcom, who wrote a report earlier this year suggesting that breaking up BT might make sense. The telco isn't too impressed with Forrester's thinking, either. "Nothing in the Forrester report has made us change our view that the present situation is best for customers, shareholders, and the company," a BT spokesman told ZDNet UK News. "The current situation allows us to focus on our business and to be accountable, as well as giving clarity to customers," he added. Ben Verwaayen, BT's chief executive, told journalists last week that breaking up BT would not yield the benefits that some people claim -- a position BT is sticking to. "Splitting a telco such as BT has not worked anywhere in the world, and the idea has always been rejected by a wide range of bodies," insisted the BT spokesman. BT shows Europe the way
BT is currently structured as four main lines of business -- Wholesale, Ignite, openworld and Retail. Godell believes that other European telcos could learn a lesson from this. The report says that European incumbent telcos like Deutsche Telekom and France Télécom must restructure along three horizontal lines of business -- networks, innovation, and retail -- to overcome their fundamental innovation, revenue, and profitability challenges. It says that restructuring internally along these lines and a gradual opening up of a telco's value chain, as BT has done, is the first step toward a new industry paradigm that Forrester calls 'layered telecom'. BT agrees that, despite the heavy criticism it sustained in 2001, it has performed better than some other incumbent operators. "We think one factor behind our success is the early recognition of our debt. We think we've tackled the problem of debt better than any other European operator," said the BT spokesman. A collective surge in investments and take-overs, during the heights of the stock market boom of the late 1990 and early 2000, has left Europe's telco industry with massive debts. BT, whose personal debt mountain neared £30bn, brought the situation under control by selling off some assets and by floating its mobile operations on the stock market last year. In contrast France Telecom is today in deep trouble, with debts of 70bn Euros (£44bn). Forrester warns, though, that if the break-up of BT is to yield benefits then it must be done voluntarily, not at the behest of regulators. "The odds are that unwilling incumbents would fight any breakup mandate for years and play the necessary games to derail the initiative on principle alone. Instead, regulators must encourage voluntary structural separation by granting incumbents that break up on their own terms full relief from their industry-specific regulatory burden," said Godell, who warns that regulators and governments have already made something of a hash of previous challenges such as local-loop unbundling and the distribution of 3G licences.

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