British Telecommunications Plc has turned in what it describes as satisfactory results for the half year to September 30, considering the low economic growth in the UK, increased competition and operating costs and the disappointing performance of subsidiaries such as Mitel. Although the September price increases were not seen as affecting turnover for the period, […]
British Telecommunications Plc has turned in what it describes as satisfactory results for the half year to September 30, considering the low economic growth in the UK, increased competition and operating costs and the disappointing performance of subsidiaries such as Mitel. Although the September price increases were not seen as affecting turnover for the period, group managing director Graeme Odgers admitted that the growth rate of inland and international calls had in fact slowed down over the last months, and that a further fall in growth rates could be expected in the future. While the growth rate of new business and residential connections had been broadly maintained, British Telecom’s late entry into the cellular market with Cellnet had meant that it was still achieving nowhere near the profitability of Racal’s Vodafone. Quality problems affecting both suppliers were partly responsible for this, as was the fact that Racal offers various value-added services and has considerably more subscribers than British Telecom, whose total is put at just over 350,000. As far as the fixed network was concerned, corporate director of finance Barry Romeril pointed out that British Telecom was of course no longer the market, but part of the market and that Mercury Communications had targeted and enjoyed considerable success in such market areas as business accounts, long-distance and international calls, and telex. When asked about the poor performance of Mitel, Odgers said that no-one was making money out of private branch exchanges in the US and that Mitel was important in maintaining a close relationship with business customers. Despite an increase in productivity and the fact that staff numbers in the core business – that is, excluding the cellular and US operations – had been held at the December 1988 level, with a modest decline in staff numbers expected by the end of the financial year, operating costs had increased by around 10%, a relatively large increase compared to other companies such as British Gas, whose costs rose by less than half that. The reason, explained Odgers, was that the telecommunications industry was an expanding one, and with British Telecom’s network size increasing at the rate of 5% per annum, and operator and financial services up by 20% and 10% respectively, increased costs were to be expected, especially after the recent 9% wage settlement. The 12% increase in second quarter profits included a UKP46m gain from the triennial valuation of the group’s two main pension schemes; surpluses in the pension fund has arisen for the first time, and so contributions to the larger, older scheme were to be suspended altogether for at least another three years, while contributions to the new scheme are to be significantly reduced – the result of this is expected to be a pre-tax benefit for the financial year ending March 31 of around UKP150m. British Telecom displayed a certain lack of enthusiasm for possible future developments, arguing for example that it had yet to be established what the Personal Communications Network actually was, and was concerned about the possible lack of profitability in the running of short-distance fibre networking. Chairman Iain Vallance preferred instead to put faith in British Telecom’s UKP3,000m modernisation programme, which has provided 4m digital lines in the UK this year, saying future growth depended more on increased quality and competitiveness in existing services.