Baby Bells: The sequel

In the wake of what could very well be a pending constitutional crisis here in the States, it was very easy to overlook a crisis of sorts over in Britain. British Telecom, the UK's equivalent to our own AT&T, has announced its own plans to break apart into a number of smaller, allegedly more nimble businesses. This will likely include creating both subsidiary companies as well as the selling or IPO-ing of several business units.

What's the deal with these giant phone companies breaking up? Anybody remember when they became (even bigger) behemoths on the promise of increased efficiencies through consolidated billing, streamlined operations, yada, yada, yada?

Both may have gone too far in the pursuit of bigness and are now suffering the consequences -- decreased profits (BT's last quarter results were down over 50%) and reduced shareholder value. This comes on top of (and is related to) all that extra debt from making all those acquisitions.

In recent years, BT and AT&T expanded rapidly into any and all areas even distantly related to the Internet and communications services -- cable-television franchiese, for example -- all with the goal of world domination. But they simply went to far. BT paid about $450 million in debt-related interest last quarter.

It wouldn't have been so bad had all the investments panned out. But like a lot of Internet-related businesses these days, they didn't. And these two giant companies have learned the same lesson as once high-flying dot-coms: Sooner or later reality intrudes, even on the Internet.

So what's a behemoth to do when it wants to move into the Next Big Thing, like wireless? Reduce debt and raise more money. How? Hope those same investors who've been driving down your stock will suddenly rush to buy billions in shares in the pieces of yourself your selling off. Simple, no?

This story, "Baby Bells: The sequel" was originally published by Network World.

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