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BT warned against selling off its networks

Selling either its entire fixed-line network or just the local loop would help to solve BT's debt problem, but it may not be a long-term solution
Written by Graeme Wearden, Contributor

BT could be making a big mistake if it accepted a bid for its fixed network, according an expert, as it emerges that the company chairman may have been keen to take an offer for its local loop.

Yesterday a consortium backed by German bank West LB made a bid of £18bn for the whole of BT's fixed-line network. This followed an earlier bid from Earthlease, a group financed by a group of US financial institutions, for BT's local loop -- the part of the network between local exchanges and individual homes.

According to Wednesday's Daily Telegraph, BT chairman Sir Christopher Bland was originally in favour of this £8bn offer, which would leave the company owning the rest of its fixed-line network. BT later rejected Earthlease's bid.

Accepting either offer would mean BT would then have to rent network capacity from the new owners in order to offer voice and data services to its customers. With a flotation of BT Wireless -- its mobile operations -- due soon, accepting the offer from West LB would mean the company was effectively being dismembered, according to some industry observers.

According to Lars Goddell, analyst at Forrester Research, BT should refuse both offers, even though it is under pressure from investors to improve its performance. "BT must figure out which business it wants to be in," said Goddell, adding that the telco should not rush into change "just because the financial heat is on".

BT's share price is down 67 percent compared with the beginning of 2000, and despite selling off some assets it is still £17bn in the red.

While selling off some or all of the fixed-line operations would pay off its debts, Goddell believes that it would be a bad move in the long term. "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.

Goddell believes that it's important for BT to make its network services the core of its operations. "BT has more than 100 years of experience running networks, where it makes its best profits and does a fair job."

Since seeing its bid turned down, Earthlease has held talks with telecoms regulator Oftel where it is thought to have requested an independent operators licence. If the request were granted, it would put Earthlease in direct competition with BT.

Many Internet service providers are keen to see changes in the way the local loop is managed. They want to offer unlimited access and broadband Internet packages to consumers, but claim that BT has deliberately obstructed the pace of local loop unbundling in an attempt to maintain its dominant position in the UK telecoms market.

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