Tech Industry

British Telecom profit falls

The company announces that first quarter profit fell 19 percent, largely because of intense competition with Europe's telco giants.

British Telecommunications announced today that first quarter profit fell 19 percent, largely because of intense competition with Europe's telco giants.

Net income for the quarter that ended June 30 fell to $801 million, or 13 cents per share, compared to $1 billion or 16 cents per share in the year-ago quarter.

Most of BT's losses, however, were from the company's joint ventures in continental Europe. The ventures, initiated to take advantage of the newly deregulated markets, are not expected to result in a profit for several years, the company said.

"Higher interests costs following last year's special dividend payment and losses incurred on new ventures had a negative impact on earnings," said Iain Vallance, BT's chairman. "Our recent initiatives in North America and Asia...are significant steps toward achieving our vision of becoming the most successful world-wide telecommunications group."

BT and AT&T, Britain and the United States' largest telephone companies, respectively, this week announced a $3 billion partnership to enhance their global presence by providing voice, data, and Internet service to companies around the world.

"The losses on the joint ventures overseas were known to be increasing," said Nigel Hawkins, an analyst at William de Broe in London who has a "neutral" rating on BT shares. He added that as the euphoria over the joint venture with AT&T begins to subside, "people are beginning to wonder whether it really will enhance earnings by 2 pence [3.3 cents] in the first year."

BT said it expects the AT&T joint venture to generate another 3.3 cents in earnings in the first year, 5 cents in the second, and 6.6 cents in the third.

De Broe said he is skeptical of those estimates, citing other similar ventures, such as Global One Alliance, a partnership between Sprint, Deutsche Telekom, and France Telecom, that are still losing propositions.

BT's shares have risen a little more than 7 percent on news of its venture with AT&T.

Bloomberg contributed to this report.