EGM Statement
British Telecommunications PLC
23 October 2001
MI0101 October 23, 2001
EGM
Birmingham, 23 October 2001
Sir Peter Bonfield
Thank you Sir Christopher and good morning everyone.
This proposed demerger will create two new separate and independent
companies - mmO2 and BT Group. Each will have its own identity, board,
management and stock exchange listing.
It is a further important step in the transformation of BT.
We have cut our debt by more than ten billion pounds since March. And
also made significant structural changes to the business, to increase our
responsiveness and focus.
We have acted swiftly. If any of our competitors now wished to take
similar radical action they would be doing so in a much more challenging
market environment.
The proposed demerger has the potential to bring significant benefits for
shareholders.
It is a fundamental part of our strategy, which received widespread
shareholder support at the time of the rights issue. Your Board unanimously
recommends that you vote in favour of it.
mmO2 and BT Group will be major FTSE 100 corporations. But they will be
quite different types of company, with different investment characteristics:
* mmO2, in the high-growth mobile market, should be a growth stock.
* BT Group, in a more stable business environment, will be cash generative
with growth potential, and so should be able to pay dividends.
As independent companies, mmO2 and BT Group will be able to focus more
clearly on their tightly defined core businesses. This will give them greater
speed and flexibility - making it easier for them to seize opportunities and
respond to challenges in the markets in which they operate.
Both companies will continue to invest to build their businesses for the
future. With independent access to the capital markets, they will be much
freer to pursue their own investment strategies.
Given the different investment requirements of the fixed and mobile
sectors, we believe that each company's separate and more focussed investment
story will be more attractive to investors.
So this demerger means that:
* shareholders will get a clearer view of how each company is performing;
* the financial markets will find it easier to get a true picture of their
value;
* and the two companies will have greater freedom to pursue their business
strategies.
All of which should lead to greater shareholder value.
Let me now briefly describe the two new businesses.
mmO2 will be a leading provider of mobile communications services in
Europe, with nearly seventeen million active customers in the UK, Germany,
Ireland, the Netherlands and the Isle of Man. It will include BT Cellnet, Viag
Interkom, Esat Digifone, Telfort Mobiel and Manx Telecom - as well as Genie,
our mobile internet portal.
These businesses will be wholly owned by mmO2. This means they can be
managed cohesively and cost effectively, taking advantage of shared networks
and services.
BT Cellnet and Esat Digifone are well-established and profitable, with
track records of revenue and customer growth, and a strong presence in the
valuable business market and in mobile internet and data services.
Viag Interkom and Telfort are relatively new businesses, which have made
substantial investments in their networks and are positioned to achieve
significant growth.
Mobile data and internet services are becoming increasingly important and we
believe that mmO2 is well positioned to be a leading player in this vital
market:
* BT Cellnet, Viag Interkom and Telfort have all done pioneering work in
this area;
* Genie is one of the leading mobile internet businesses in Europe;
* And, before the end of this year, we plan to launch one of the world's
first 3G networks on the Isle of Man.
mmO2 will have the assets, financial capacity and quality of management
it needs to succeed in the exciting mobile market.
Turning now to BT Group, we see a different type of company, in a largely
different type of market, but with all the ingredients in place for success.
It has good revenues, a huge customer base and is at the forefront of
innovation and customer service.
BT Group will consist of four lines of business: BT Retail, BTopenworld,
BT Wholesale and BT Ignite.
Supporting these, will be BTexact Technologies, covering research and
development, and BT Affinitis which will provide business services to the rest
of the Group.
This is a balanced portfolio of businesses, providing voice and data
services in the UK, elsewhere in Europe and beyond.
BT Group will aim to create value based on its service excellence, brand
leadership, large-scale networks and existing customer base. It will also
develop and market new, higher value, broadband and internet products and
services.
BT Retail will provide the main link between BT Group and its customers.
It is already the UK's largest communications service provider and aims to
build on this position of strength. It is moving beyond the traditional,
although still important, voice telephony market. For example, more than a
third of its major business revenues already come from new-wave products and
services such as internet, wireless and solutions, and these revenues are
growing significantly year-on-year.
BT Retail will continue to deliver wireless services in the UK supported
by BT Cellnet.
The future importance of the internet to BT Group is demonstrated by
BTopenworld. Responsible for all our mass market internet activities, its
strategy is to inspire customers to explore the net as a whole. The growing
use of broadband services, with their greatly increased speed and range of
applications, is a key part of this strategy.
BTopenworld is already the UK's leading retailer of broadband services,
and is one of the UK's leading internet service providers with nearly one and
a half million active customers.
There has been much debate recently about the rollout of broadband in the UK,
in the course of which BT's role has attracted comment and criticism. I
believe that much of this is unjustified. I thought shareholders might like to
know:
* We have made major investments in broadband. A thousand of our
exchanges, serving some 60 per cent of UK households, are now ADSL
enabled.
* We have done more than required of us by the regulator.
* We are committed to working with other industry players and government
to achieve wider broadband acceptance by businesses and consumers.
New areas, such as broadband, are increasing the demand for network
capacity. Which is where BT Wholesale comes in. It runs BT Group's networks -
the largest in the UK, with the greatest geographical and customer coverage,
reaching almost every home and business in the country.
Thanks to digital technology and advanced electronics our network can
provide improved performance at reduced costs.
Businesses in the UK and elsewhere are increasingly using broadband and
other sophisticated communications tools such as the internet to enable them
to work more effectively. BT Ignite offers a range of products and services to
help them do just this.
For example, BT Ignite's internet data centres provide hardware and high-speed
connections to enable businesses throughout Europe to run websites and on-line
business applications. This is backed up by an optical fibre network that
connects more than 250 major European cities including all the major
commercial centres.
Concert, our joint venture with AT&T is now being unwound and we are
retaking full control of our share of its businesses, customer accounts and
networks. These will be integrated into BT Group, so that Concert's customers
continue to receive uninterrupted and excellent international service. The
resulting clarity of focus and control should enable us to generate improved
shareholder returns.
Under the BT Group banner, BT Retail, BTopenworld, BT Wholesale and BT
Ignite will each have the freedom to focus on their own markets and customers.
We continue to believe that shareholders are best served by keeping these
businesses together under one umbrella at this time.
To sum up, the demerger will create two new companies:
* mmO2 , with exciting prospects in the mobile market;
* and BT Group, a more mature business, but also with exciting prospects
in areas such as the internet and broadband.
Two companies with management focused on the particular needs of their
customers.
Two companies with the flexibility to act rapidly.
Two companies dedicated to the creation of shareholder value.
And you will own a stake in both.
Your Board believes that the proposals are in the best interests of BT
Shareholders as a whole. I urge you, if you have not already done so, to vote
in favour.
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