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BT's Yell.com sale in doubt

May 12, 2001
Web Posted at 1504 GMT

By Rick Wray

LONDON (The Industry Standard Europe) - The sale of Yell.com by British Telecom has been put in doubt by a ruling by the UK's Office of Fair Trading that the company must radically reduce the price it charges companies to advertise in its business directories.

BT, which announced plans to split into two separate companies yesterday, has been locked in talks with a consortium of private equity investors including Apax Partners about the sale of the business for several weeks.

However, the OFT ruled this morning that the fees charged by BT to advertise in its directories should be capped at inflation minus six percentage points for four years from January 2002. The current cap – agreed with the regulator in 1996 – is inflation minus 2 per cent.

That new price cap could wipe a hefty chunk off Yell.com's sales and consequently slice up to £1 billion (1.6 billion euros) off the value of the business, analysts believe.

The OFT's review of the charges set by Yell.com for its printed and online directories business began almost a year ago and BT has been awaiting a decision before finalising the sale of the business.

That sale is one of several measures that BT is taking in order to reduce its debts of just under £28 billion (45 billion euros). Along with a split of the business, the company yesterday announced that it will not pay a dividend this year and called on shareholders for an additional £5.9 billion (9.5 billion euros). That is on top of plans to sell non-core assets – such as its stakes in wireless businesses in Italy, Japan and Spain – and its London headquarters.

These measures were supposed to leave the core BT business with debts of £15 billion (24 billion euros) by the start of next year.

Sources close to BT maintain that the company was aware of the potential impact of the impending OFT decision before yesterday's announcement, which is why there was "several billion pounds worth of leeway" in the debt reduction plan that was presented to analysts with the restructuring.

However, BT is reviewing the OFT decision before deciding whether to accept the price cap or appeal to the UK's Competition Commission, the final arbiter on such disputes.

Friday has turned out to be something of a day of bad news for BT. Ratings agency Moody's announced that it was downgrading its stance on BT to Triple B from A2. This technical change is likely to lead to an increase of #30 million (48 million euros) to the interest that BT pays on its debt. That follows the decision of the other major ratings agency Standard & Poor's to downgrade BT to A minus from A.

At the close of trading BT shares were down 6 pence at 521 pence.