BT share price cut 18% after 23% drop in profit

British Telecommunications (BT) lost almost a fifth of its market value yesterday, after the company said strong competition for UK customers was eating into profits and forcing it to cut 3,000 management jobs.

Britain's largest telecoms company said third quarter pre-tax profits slumped 24 per cent to £651 million sterling because of accelerating competition in Britain and hefty staff costs.

Its shares dived 18 per cent to £9.76, its lowest close since October 20th, on the figures, which were at the bottom end of market expectations.

The shortfall prompted the company - which is in the process of acquiring Irish telecoms company Esat - to release its results one week ahead of schedule and warn that fourth quarter figures would be no better.

The chief executive, Mr Peter Bonfield, said the former monopoly had been surprised by the strength of competition in the UK, where cable companies and re-sellers offering cheap international calls are undercutting its prices.

As well as losing customers, an increasing number of calls from BT lines to those of its competitors means it is having to share a bigger proportion of its revenue with other companies, particularly mobile operators and Internet service providers, he said.

Payments for calls terminating with other operators nearly doubled in the nine months ended December 31st and were responsible for nearly half a 17.6 per cent rise in third quarter costs. The volume of calls terminating on other networks in the UK now exceeds that of calls between BT customers, Mr Bonfield said.

At the same time, it has been affected by a 25 per cent reduction in the price of calls from fixed to mobile phones, forced on it by the industry regulator.

BT hopes to restore margins by cutting one in 10 management jobs, some 3,000 people, over the next six to nine months. It will offer voluntary redundancy to staff in selected areas, mainly administration and support, in a package that will cost £350 million.

The cuts will offset rising staff costs, which have increased more than 10 per cent from a year ago. It paid out £10 million in bonuses to staff who worked over the millennium period and will pay another £20 million in the fourth quarter.