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July 28, 1994

BRITISH TELECOM SURPRISES AS COST-CUTTING BEARS FRUIT IN TOUGH CLIMATE

By CBR Staff Writer

British Telecommunications Plc has announced better than expected first quarter results but is still to press ahead with its 15,000 redundancy programme and promised to cut prices further in its fight against growing competition. Pre-tax profits for the quarter to June 30 rose 3.2% to ?781m, beating market forecasts that ranged from ?743m to ?764m, and the news added a penny to BT’s share to 383p. The figures included the first ?54m charge, representing 1,700 employees, of the company’s ?750.0m redundancy programme. The company declared that the profit growth had been driven by significant price reductions and other marketing initiatives to encourage customers to make more calls – also known as Bob Hoskins. This has led to a growth in call volumes of 7% above last year on a 12-month moving average basis. However British Telecom is facing fierce competition in the international call market, with its international call volume growth down to 5% on a 12-month moving average basis, compared with 7% a year ago, and turnover in the quarter fell 3.2%. Exchange line rental turnover grew by 4.2% to ?620m, reflecting continuing growth in the number of exchange lines in the company’s vast network, despite more competition. The number of business exchange lines grew by 4.4% over the 12 months to June 30 while residential lines grew by 1.8%. Customer premises equipment turnover grew by 6.7% in the quarter, because of the wider product range and increased geographic coverage of the BT shops. Cellnet Mobile Communications Ltd connections rose by 128,000 in the quarter to 1.1m. The growth in business volumes and cost control over the past year compensated for the initial impact of the tougher regulatory regime from the Office of Telecommunications introduced in August 1993. The price control formula, however, requires BT to make further cuts of around 5% on about 60% of it’s total turnover. These are to be weighted as if implemented on November 1. Total turnover climbed 1.2% to ?3,382m, earnings per share rose 2.5% to 8.1p.

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