British Telecommunications Plc may be preparing its mobile phone unit for a sale, analysts said.
The former UK monopoly said yesterday it will give the unit to shareholders, freeing it to "take part in the consolidation in the industry." BT Wireless, which ranks fifth in Europe, will have little or no debt and has already written down the value of assets -- typical moves for companies seeking suitors.
Telefonica Moviles SA and Telecom Italia Mobile SpA may be interested in buying the division, investors said. As growth slows and costs to build faster networks mount, companies are trying to boost profit through expansion. Vodafone spent US$162 billion on Mannesmann AG last year to become the world's largest wireless company. BT Wireless may be worth US$21 billion, analysts said.
BT Wireless ``could be an interesting target,'' said Douglas Thomson, who helps manage ?4 billion (US$5.8 billion) at Aberdeen Asset Management Plc in Glasgow. "It's still got a great business in the UK. This a consolidating industry." The spin-off is part of British Telecom's efforts to boost its stock price, reverse losses and cut debt, which tripled last year to ?27.9 billion. The company also plans to raise ?5.9 billion in a rights offering, while selling or spinning off some other assets.
New Networks
Shares of British Telecom, which is the second-biggest mobile phone operator in the UK behind Vodafone, fell as much as 13.5 points to 514.5 points yesterday, after a 7 percent drop Thursday.
The stock has lost almost half its value in the past year.
British Telecom's debt mounted last year as it expanded, buying ?10 billion worth of licenses to offer faster wireless services in Europe and making acquisitions abroad. Now it's scaling back its businesses.
By spinning off the mobile phone unit, British Telecom won't have to support the division's investments. BT Wireless may need to spend as much as ?5 billion to build new networks to offer faster Internet access to customers, analysts said.
``There is a long-term future in [faster wireless], but it is not as rosy as it was 12 months ago,'' said Christopher Bland, who replaced Iain Vallance as chairman last week. The "returns are distant and uncertain," added Finance Director Philip Hampton.
Hampton said that British Telecom wasn't "fattening [BT Wireless] up for a takeover." British Telecom posted its first quarterly loss yesterday, after ?3 billion of costs related to its acquisition Viag Interkom AG. After spending ?10.7 billion last year to buy out the German mobile operator, it said the outlook for the company is no longer as promising as it had expected.
European Rivals
BT Wireless has about 17 million subscribers, of which 11.2 million are in the UK, 3.7 million are in Germany and 1.1 million in Ireland. The division would have broken even in the fiscal year ended March 31, British Telecom said.
The new BT Wireless will have zero to ?2 billion of new debt and will try to cut costs by sharing sites and some gear for the new networks. It will also get its own chairman.
"This leaves them in a better position to participate in any consolidation," said Karen Robertson, investment director at Standard Life Investments, which owns 2.2 percent of British Telecom. "There has been speculation about Telefonica." A Telefonica Moviles spokesman said the Spanish company wasn't in talks with BT Wireless. Telecom Italia Mobile spokeswoman Roberta Vivenzio said the company's not interested.
Telefonica Moviles and Telecom Italia Mobile spent less on licenses to offer faster mobile phone services in Europe last year than rivals such as France Telecom SA, Deutsche Telekom AG and Vodafone Group Plc, so they may have more cash to finance an acquisition now, analysts said.
Neither company bought a license in the UK, where the government raised ?22.5 billion, ten times more than it expected, with the sale of five licenses.
In a venture with Sonera Oyj of Finland, Telefonica paid US$7.5 billion for a license to offer faster wireless services in Germany, where neither company has any customers. Buying BT Wireless would give it a customer base there to help it generate revenue from its services faster, analysts said.
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