LONDON, Feb 12: British Telecommunications Plc on Thursday rang up third-quarter profits that topped market expectations, boosted by a break-up fee from its aborted merger with MCI Communications Corp.The one-off 238 million pound ($389 million) gain masked a fall in underlying profits, which BT attributed in part to price cuts and increased investments to take advantage of Europe's newly-liberalised telecom market.
BT's pre-tax profit of 1.019 billion pounds ($1.7 billion), including the break-up fee, versus 909 million pounds a year earlier.
Analysts had predicted pre-tax profits of 940 million to 1.0billion pounds, including the gain, for the third quarter ended on December 31.
BT's shares rose nearly two per cent on the results, gaining 10 pence to 579.5 by 0935 GMT.
"A key feature of this quarter has been the continuing strong growth in demand. This has been driven in part by competitive pricing across our range of products and services," BT chairman Iain Vallance said in astatement.
"Overall, our trading performance remains at a satisfactory level," he added.Vallance, BT's executive chairman for over 10 years, also said he planned to switch to a part-time role as chairman from July 31, paving the way for chief executive Peter Bonfield to increase his control over the company.
"With Sir Peter serving as chief executive for over two years (since January 1996), and the rest of the top team in place, it is appropriate for me to move on to become part-time chairman," Vallance said.
Looking ahead, BT expected to book most of the $7.0 billion in proceeds from the sale of its stake in MCI in July or August.
BT opted to cash in its 20 per cent MCI stake -- which it bought three years ago for about $4.3 billion -- after its bid for the telecom company was trumped by US group WorldCom Inc.
"The vast majority of that (gain) will come when the deal closes, which is currently scheduled, I believe, for around July-August," BT finance director Robert Brace told Reuters in aninterview.
He estimated that UK taxes on the accounting gain would be about 300-400 million pounds, although the exact figure had yet to be determined.
Brace said BT had yet to decide what it would do with the proceeds from the MCI stake sale. BT stopped accounting for MCI as an associate as of November 1 last year.
"The choices at the macro level fall down to investing in the business or expanding the business, or returning money to shareholders via dividends or possibly even share buybacks ... And over time, we'll probably do some of each," he said.
Brace added that British Telecommunication's ongoing joint venture with MCI, Concert Communications Services, was performing well.
"Concert's doing fine. There's significant sales growth ...Some time this year it will break even," he said, declining to give further details.Brace said that the British telecom major's third-quarter results were weighed down by the company's recent price cuts in the United Kingdom, which amounted to about 750 millionpounds per year.
At the same time, the company had higher losses from associated companies due to increased investment in Europe.
BT's overall losses from associates totalled 90 million pounds compared to a profit of 27 million a year earlier.
"We've been ramping up our European investments to be ready to compete in 1998, which we are. We're running fast. And the losses in Europe have increased over the prior period," he said. When asked about recent rumours that BT was in talks about an alliance with Microsoft Corp or Cable and Wireless Plc, Brace said, "We have a lot of options and a lot of opportunities."
Microsoft tieup talks termed rumours
When asked about recent rumours that BT was in talks about an alliance with Microsoft Corp or Cable and Wireless Plc, British Telecom finance director Robert Brace said, "We have a lot of options and a lot of opportunities."
(Microsoft chairman) Bill Gates said that that was a false rumour on Microsoft. And I think the Cable and Wireless situation,nobody's suggesting that now, I don't think ... I thought that one had a short life," he added.
"We don't comment on rumours. If we have anything to announce, we'll announce it."
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
