Outlook: British Telecom

IT MAY be hard to believe now, but it was only two years ago that British Telecom seemed doomed to a future of managed decline. Brash new operators with faster networks and better service were snapping up its most lucrative business customers. International charges were tumbling. And its overseas strategy was in tatters after as its merger with MCI began to come apart at the seams. All that was left, the experts opined, was BT's residential network, which offered little growth prospect.

As BT shares powered through pounds 10 yesterday, it was easy to rubbish that analysis. However, it was broadly correct in all but one key respect - far from being dull, BT's local network has turned out to be a goldmine.

Consumers have caught internet fever and every time they log on BT reaps the benefit. What's more, people tend to spend a lot longer on the line when they're surfing than when they're chatting to a friend down the road. BT reckons 15 per cent of the traffic on its network is internet-related and thinks this will rise to at least 20 per cent next year. New technologies offering high-speed internet access over the standard copper line will further boost demand.

The cash being thrown off is helping to fund a series of expensive overseas investments and a pounds 10bn joint venture with AT&T. These may yet prove to be worthwhile, although it is still too early to tell. But if BT does establish itself as a global telecom operator, remember that it was its boring old residential business that paid for it all.