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February 25, 1988


By CBR Staff Writer

Meltdown Monday helped boost British Telecom’s third quarter pre tax profits by 13% to UKP574m, a figure well at the top end of the City’s expectations. Telecom said that the data and telephony traffic stimulated by the shares crash certainly helped the 7% boost in turnover which clocked up UKP2,602m in the third quarter. But Graeme Odgers, group managing director at Telecom warned that this buoyancy would not necessarily continue into the fourth quarter although he maintained that the company is still looking for satisfactory results for the full year. City analysts are more sceptical about the role played by Meltdown Monday in the fortunes of the phone giant. Brokers Laing and Cruickshank say that the pretty extraordinary figure arises from the distortion of earning levels that occurred when Telecom redeemed UKP250m of its preference shares: Advance on earnings per share increased by 16% in the third quarter – pretty phenomenal commented Laing & Cruickshank analyst Robert Kerr. Despite the distortion, the broker’s forecast for the end of year pre-tax figure remains healthy at UKP2,272m, a 10% increase. The third quarter announcement comes at a time when the Office of Telecommunications watchdog is looking into Telecom’s pricing structure following the latest batch of price increases announced two weeks ago. Further increases in the cost of private circuits justified by a ‘cost rebalancing’ exercise across the spectrum of services have angered user groups, given that Oftel stated that the last time this was done – back in October 1986 – really would be the last time. Telecom’s chairman Iain Vallance would comment only that the discussions with Oftel are at a preliminary stage and that Telecom has nothing to say on the issue right now. 1,700 staff increase Meanwhile the company insists that it is on target for the March deadline for 90% of payphones to be in working order, contrary to a recent Oftel survey that reported a decline in the number of payphones found working. Odgers admitted that the December-New Year period was a difficult time for Telecom but claimed that closer attention to maintenance plus a tighter managerial effort would pay off in time for March. The big increase in manpower levels seen in recent months will certainly help Telecom achieve its goals in quality of service issues. Staff numbers have increased by 1,700 since last year’s third quarter results – despite the fact that this time last year Telecom was announcing a cutback of 500 employees per annum as part of a cost savings programme. Most of the extra manpower was brought in to repair the storm damage suffered last October which totalled around UKP40m, and to meet quality of service demands laid down by Oftel. Furthermore Telecom has stated that staff levels will not diminish over the next year. This is thought to be partly because of Telecom’s decision to devote more attention to modernising its local network ahead of schedule. The company has said it proposes to up the rate of digitalisation to 3m lines a year from the previous rate of between 2m and 2.5m per annum. This haste to digitise the local network could be a reaction to Oftel granting a licence to cable TV operators to carry local voice services. On the thorny issue of charges for directory inquiries, there is no date yet for their introduction – but brace yourself: the rate could be 30 pence a time.

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