BT warns investors of bad publicity

British Telecom has warned investors that the Moriarty Tribunal may result in negative publicity and stiffer regulation for its Irish subsidiary, Digifone.

The firm also told shareholders it could not give an assurance that Digifone's entitlement to hold its mobile licence would not be withdrawn as a result of the tribunal.

The comments are contained in a demerger prospectus for BT's mobile unit MMO2 which was published yesterday. The company said it could not predict the future course of the investigations and was "co-operating with the tribunal".

The documentation states that the directors do not believe the outcome of the proceedings will lead to the loss of the licence.

However, it also states no assurance can be given.

But the 286-page prospectus indicates that BT believes it may suffer in some way as a result of the tribunal.

"We may, however, suffer negative publicity as a result of the proceedings and be subject to more stringent regulatory scrutiny in the future," says the prospectus.

BT first acquired an interest in Esat Digifone in January 2000. Recently the Moriarty Tribunal extended its investigation into the award of the second mobile phone licence.

The tribunal is examining a number of transactions involving the former Government minister Mr Michael Lowry and Mr Denis O'Brien, a former chairman of Esat Digifone.

It is also investigating a contribution to Fine Gael which was funded by Esat Digifone.

Mr Lowry was at that time the minister in charge of the process to award the Republic's second mobile phone licence.

Meanwhile, the prospectus also lays out the fullest description yet of the risks associated with investment in third-generation technology, which enables high-speed internet to be accessed from mobile devices.

BT said MMO2 would spend £8.3 billion sterling (€13.28 billion) over five years to roll out networks. It also indicated it expected to apply for a UMTS third generation licence in Ireland.

But the document clearly sets out the risks associated with investment in third-generation technology. "Our existing and new technologies may become obsolete as a result of the emergence of new or emerging technologies in the future," says the prospectus.

The documentation shows that BT invested £4.3 billion in capital expenditure on third-generation licences in the UK and Netherlands alone in the year to March 31st, 2001.

The company warns: "There is a risk that we may never generate sufficient positive cash flow for our investment to make an economic return."

BT also warned shareholders of a £500 million accounting charge against badly performing investments yesterday and said it might incur substantial costs if it closed its Concert venture.

BT said it expected to take a charge of about £500 million in its first-half results to reflect the reduced value of its 9 per cent stake in AT&T Canada Inc and its 20 per cent holding in Impsat of Argentina.

Both companies are smaller telecoms operators whose shares have slumped along with the rest of the market.

But the charge is likely to be exceeded by the cost of closing Concert, BT's 50/50 global joint venture with AT&T Corp that supplies communications to multinational companies. BT said it was still discussing options for the unprofitable business.