BT: Cling onto assets

August 6, 2001 Posted: 1106 GMT

LONDON (CNN) -- British Telecommunications, faced with offers for big chunks of its business, should not sell its fixed-line or local units, analysts said.

A consortium led by Westdeutsche Landesbank, Germany's largest state-owned bank, offered British Telecom £18 billion ($25.7 billion) for its entire fixed-line infrastructure, The Sunday Times reported.

BT, the UK's second-largest phone company, has been under shareholder pressure to reduce its mountain of debt. That it has done partly through the disposal of assets and partly by selling stock worth £5.9 billion.

At the end of June its debt had fallen to £17.5 billion from £27.9 billion at the end of March. The company plans to spin off its mobile-phone business, BT Wireless, as it attempts to improve its standing among investors.

"They should not give up their assets, certainly not at these prices," said a London-based analyst. "We value the fixed-line assets at around £21 billion if not more."

British Telecom rejected an £8 billion offer for its local loop network from a consortium led by the U.S. finance house Babcock & Brown. The "local loop" network – the wires that connect subscribers' homes and businesses to the nearest telephone exchange - is a BT monopoly, and the British government has been trying for some time to open up the provision of local call transmission to other companies.

Nigel Hawkins, a telecom analyst at Williams de Broe, told CNN: "The difficulty is defining where the local loop and the fixed line infrastructure begins. It's a complicated story but I'm really skeptical if any of these reports during the summer silly season will lead anywhere."

Hawkins has a buy rating on BT stock. He said he values the fixed-line, retail and local loop businesses at about £30 billion.

"The fixed line business we value at north of £20 billion, but any break-up must consider how BT's remaining assets should be broken up," Hawkins added. "That in itself is a major stumbling block."

WestLB approached BT two months ago and its representatives had held talks with BT Finance Director Philip Hampton, the UK's Sunday Times newspaper said at the weekend.

"We have laid down our marker with BT," a source told the paper. "At the moment the fixed-line business is not clearly defined in terms of value, but we have sought to have first refusal on a deal."

Meantime, BT's plan to sell its wireless unit has also been called into question now that the company has made progress in cutting its debts.

"There are some shareholders who want BT to hold on to Wireless because they feel the company could lose revenue that a combined company can enjoy," Hawkins said. "I expect the sale to go ahead. BT has called an analysts meeting for September 5 to outline its plans for BT Wireless."

British Telecom's shares fell 2.7 percent to 484.5 pence in London on Monday morning. The stock has fallen 3 percent so far this year, and is about 62 percent below its peak of 1,339 pence recorded on December 29, 1999.

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