Risk Management for British Telecom

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  • Topic: BT Group, Telefónica Europe, 2001
  • Pages : 9 (2685 words )
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  • Published : November 27, 2010
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Risk Management

Group Home Assignment

British Telecom

Tutor: Herbert Windsor
Group member: Zhu Dan
Chen Yanran
Varga Klaudia
Fülöp Mészáros

Introduction of British Telecom Organization

BT Group plc (formerly known as British Telecom and still occasionally referred to by that name), is the privatized UK state telecommunications operator. It is the dominant fixed line telecommunications and broadband Internet provider in the United Kingdom. BT operates in more than 170 countries and almost a third of its revenue now comes from its Global Services division. BT Group is the largest communications service provider in the United Kingdom. It is also one of the largest communication companies in the world. The Company is listed on the London Stock Exchange.

Once upon a time, BT Group rivals could have “fit into one of the company's signature red phone booths”. Though competition has taken a toll, BT Group still wears the crown as the UK's leading telecommunications carrier. The BT Group offers local and long-distance phone service through nearly 22 million access lines (comprising about 15 million residential and more than 6 million business connections). It also provides Internet access and other data services, with more than 12 million broadband lines in operation. Through its Open reach unit, BT provides local network services. BT Group operates primarily in the UK, but its empire spans 170 countries including key markets in Western Europe and North America.

By 2001, BT faced an embarrass situation that with a debt of £30 billion, much of which was acquired during the bidding round for the 3rd generation mobile telephony (commonly known as 3G) licenses. It had also failed in its series of proposed global mergers, and the funds flowing from its then virtual monopoly of the UK market place had been largely removed. It was also headed by two executives who had little support from the London Stock Exchange, particularly in light of a 60% drop in share price in sixteen months.

The economic and financial environment

Most of the group’s current turnover is invoiced in pounds sterling, and most of its operations and costs arise within the UK. The group’s foreign currency borrowings are used to finance its operations. Of these borrowings, approximately 19.1 billion was swapped into sterling. Cross currency swaps and forward foreign exchange contracts have been entered into to reduce the foreign currency exposure on the group’s operations and the group’s net assets. The group also enters into forward foreign exchange contracts to hedge investment, interest expense, purchase and sale commitments. The commitments hedged are principally US dollars, the euro and the yen. As a result of these policies, the group’s exposure to foreign currency arises mainly on the residual currency exposure on its non-UK investments in its subsidiaries and ventures and on any imbalances between the value of outgoing and incoming international calls with Concert. (Concert Communications Services was a $1 billion joint venture between BT and MCI since 1994.)

The majority of the group’s long-term borrowings has been, and is, subject to fixed interest rates. The group has entered into interest rate swap agreements with commercial banks and other institutions to vary the amounts and period for which interest rates are fixed. The long-term debt instruments issued in December 2000 and February 2001, BT’s annual interest charge would increase if BT’s credit rating was to fall by one credit rating category by both agencies below a long-term debt rating of A3/A minus.

BT early announced in April 2000 that they would restructure their operations, by separating the UK fixed-network business into two businesses and forming four new international businesses to operate and manage BT’s broadband, internet, wireless and directories businesses....
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