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November 10, 1995


By CBR Staff Writer

In his customary dig at the UK Office of Telecommunications regulator, British Telecommunications Plc chairman Sir Iain Vallance complained in his statement accompanying the company’s interim figures of the harsh regulatory regime in which the company has to operate. Finance director Robert Brace acknowledged that the telephone giant was not alone in its predicament however, our competitors in the UK are also finding it difficult to make profit growth and there comes a point in time when the profit reductions will have to slow down, he told Mark John of Reuters. The inflation-minus-7.5% formula that Oftel imposes on British Telecom has forced it into ú270m of price reductions in the six months. The second quarter price reductions included the effect of the introduction of per second pricing in June. The price reduction formula will stay in place until at least 1997. At the last count, British Telecom had 87% of the entire UK market in terms of call revenues, with 95% of residential call revenues and 79% of business revenues, according to Oftel’s figures for 1993-94. Its competitors have increased their share since then, especially in the business sector. The day British Telecom suprises the market with its results will itself come as a surprise: the one aspect of the figures that caused a few raised eyebrows was the dividend increase. It was up 5.7% at 7.45 pence per share. British Telecom has become associated with a 6% dividend growth rate, and Brace said this slight growth reduction had nothing to do with Oftel’s rules, increased competition or the comparatively weak growth rates in the UK. He had warned at the full-year stage that the 6% growth rate could be in jeopardy (CI No 2,667). The shares were up seven and a half pence at 371.5 pence by late afternoon. Inland call revenues fell 4.6% in the half and international calls were up 23%. Inland calls were hit by an 11% drop in call prices in the second quarter, compared to a year earlier, which failed to offset the benefit of increased call volumes, according to the company. And again, volume growth in international calls was offset by price reductions.

Cost a lot less

The company said the net turnover increase was in part due to the weakness of sterling and its effect on incoming call turnover. However, the star of the show was mobile telecommunications, with turnover up 38% to ú410m in the half, which includes the company’s controlling interest in Cellnet Mobile Communications Ltd, which added 360,000 subcribers in the six months to stand at 2.1m at the half-way stage. For the first time, British Telecom reported a drop in residential exchange lines, which fell 0.2%, due to increasing competition, according to the company. This competition is coming mainly from the cable operators, since Mercury Communications Ltd decided last year to concentrate on the business market. Staff costs have been cut by 8.6% in the half and numbers by 11% compared with a year ago. In the first half the headcount has been reduced by 2,600. Without redundancy costs, which were down 19% on a year ago, operating profits still fell 0.9%. The company put this down in part to its share of MCI Communications Corp’s $831m restructuring charge, which came to ú73m. It is extending an advertising campaign nationwide to try to convince customers that talk is cheap. It will not only be good to talk, but cost a lot less than customers currently think.

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