The investment column: Tricky times for Telecom

WHEN it comes to British Telecom, investors have a dilemma. Here is a giant in an industry with almost unlimited potential for making pots of money. The key question, however, is who will be pocketing that cash. Will it be established operators like BT? Or will the spoils go to nimbler groups who are able to pick off the most lucrative business at will?

According to Sir Peter Bonfield, BT's chief executive, the circle can easily be squared. True, telecoms is a fastest-moving industry. As far as Sir Peter is concerned, however, BT clearly falls into the nimble camp. And when he waxes lyrical about the convergence of fixed and mobile telecom systems, BT's web of operations in continental Europe, not to mention the potential of the internet and other interactive services, even the most hardened sceptic would have to admit to being at least partly won over.

The problem is that the numbers, released yesterday, tell a different story. In the year to March, BT's turnover rose by just 5 per cent, while operating profits come out 4 per cent ahead. Hardly the sign of an exciting growth business.

The problem is competition. In international telephony, BT's charges in the fourth quarter were 15 per cent lower than the previous period, but volumes only grew by 9 per cent, so sales fell. In the UK BT continues to lose market share in the residential market although it is holding its own in the business segment.

That said, the introduction of interactive services will increase usage of BT's network. And its operations in continental Europe should begin to come good after losses peak at pounds 300m this year. BT will also be debt- free when it receives the $7bn owed to it by WorldCom later this year, giving it plenty of firepower to pursue other deals. The question is whether BT, which watched its attempted merger with MCI collapse last year, is able to grasp the opportunities Sir Peter sees. At 638p, down 2.5p yesterday, the shares are no more than a firm hold.