Thursday, November 04, 2004

Read my lips

Earlier this week I gave some coverage to some of the extraordinary reports coming from within BT Group (I bet someone is in big trouble). This morning, the Financial Times relates portions of a speech yesterday at a Korn/Ferry luncheon in London, in which BT's chairman Sir Christopher Bland, made comments to the effect that the current pricing regime for DSL in the UK made BT's 21CN project less attractive on a long-term basis. Coming in the same week as a lot of hand-wringing over progress towards the Lisbon goals, I think the message is a lot sharper than "what a shame." He reportedly also said that he wanted OFCOM to allow BT to cut wholesale DSL pricing, so that the company can avoid having to go down the unbundling route within the retail division in order to remain competitive.

Then, suddenly this morning, one week before the company reports Q2 results, BT uncharacteristically issued a press release reporting record quarterly net adds in DSL of 607k. BT Retail took 30% of net adds, up from 29% in Q1. I don't know about the rest of the market, but both of these figures are better than what I was looking for (450k net adds total market, Retail share 28%), and in light of what I thought were fairly weak broadband adds from NTL yesterday, it looks like BT has genuinely upped its marketing game versus cable this quarter. Impressive newsflow, but in light of all the other aspects to this story, I find the timing somewhat suspicious.

Running all this through my PR smokescreen extractor fan, I derive a couple of clear messages:

We're doing fine with our wholesale DSL product, it is popular, and promoting overall market growth above expectations. This demonstrates that we can have a competitive broadband market without recourse to widespread unbundling.

Our Retail unit is also fine selling our wholesale product, it is remaining competitive. It will remain so if we can narrow the pricing gap between wholesale and unbundling.

Personally, I will be most curious in next week's numbers to see how the unbundled lines have moved over the past quarter. The UK is the poor man of Europe in terms of unbundling, with an execrable 14,000 last quarter. As I've pointed out previously, France went from 65k to over 1m lines in the space of a year, and this seems to have been the catalyst for some fairly dramatic strategy transformation within France Telecom. It's going to be interesting to see what nuances of different thinking come out of BT management next week, and also, more fundamentally, who turns up to the analyst presentation.

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