Fixed-line slump cuts BT profits

BT Group, Britain's largest phone company, says profit fell to the lowest level in five quarters as demand waned for traditional fixed-line phones and the former monopoly took a charge for a regulator-enforced reorganisation.

Net income in the three months to September 30 declined to 371 million ($939 million), or 4.3p a share, from 430 million, or 5p, a year earlier.

Revenue rose 4.8 per cent to 4.82 billion.

BT set aside 70 million for a new unit to give rivals better access to its network.

Chief executive Ben Verwaayen is relying on high-speed internet connections and on contracts to manage corporate computer networks as demand ebbs for the traditional telephone.

Sales at BT missed analysts' expectations as 263,000 fixed-line customers defected to competitors.

"There clearly is no growth in that fixed-line business," said Bob Parker, deputy chairman of Credit Suisse Asset Management in London, which oversees the equivalent of US$335 billion.

"BT is focusing on broadband. The problem there is that margins are much lower."

Verwaayen, who took over at BT in February 2002, has now delivered five successive quarters of year-on-year revenue growth.

Without its own wireless network, which BT spun off in 2001 to cut debt, the company is relying on demand for broadband internet services to expand.

Broadband connections in Britain at the end of June surpassed the number of dial-up hook-ups for the first time, said the regulator, Ofcom.

Profitability is declining at BT because its biggest business, the fixed-line division, is shrinking as consumers send more emails and make more calls on mobile phones.

Verwaayen said BT was in a "high-margin to low-margin" transition.

Investment in the broadband network, which BT says now reaches more British homes than running water, means it's not yet delivering a profit that matches the division's sales growth.

- BLOOMBERG