BT wages war on former friends

PHONE giant BT is targeting former subsidiaries as it struggles desperately against declining market share.

The company is spending millions attacking former subsidiaries mmO2 and Yell as it battles to deal with the threat posed by rival phone companies, which are snatching 100,000 phone subscribers a month from BT.

The loss of subscribers has scared the City and kept BT's turnover flat, despite contract wins in the global arm of the firm and in broadband.

Paul Elliot, chief executive of BT's directories business, says he has recruited 600 staff to sell classified advertising in the fight against Yell, the former BT subsidiary that publishes Yellow Pages. 'This is a very serious commitment of resources. We are spending tens of millions of pounds,' he told Financial Mail.

The company has also launched aggressive promotions for its mobile phone venture which competes directly against mmO2, formerly BT Cellnet, which was demerged in November 2001.

According to investment bank CSFB, BT Mobile is capturing ten% of all mobile phone contract sales at Carphone Warehouse. Industry sources said the figure could be as much as 20%. But they added that the promotion was expensive for BT.

'All the operators are subsidising handset prices to win long-term customers but BT is spending more per phone than anyone in its latest promotion,' said one. CSFB estimates that the subsidy is up to £100 more per phone than rivals.

Elliot hopes to overtake Thomson Local Directories in terms of advertising sales by the end of this year, but has his sights set on Yell. Thomson has about ten% of the market while Yell has about 85%, according to Department of Trade and Industry figures.

BT sold Yell to a consortium of venture capitalists led by Apax and Hicks, Muse Hicks Tate in June 2001 for £2.1bn as the telecommunications firm struggled to reduce debt. BT re-entered the classified advertising market last year.

Elliot said: 'I joined from First Direct, the telephone-bank, mainly to develop directory-enquiries, but I brought an outsider's eye and was astonished to see that there was only a one-year noncompete agreement.'

Elliot was even more surprised to learn that Yell was still selling advertising on behalf of BT's directories business. 'Yell was selling the big ads for local government and hospitals that appear in directories as full page ads. The contract ended about six months ago,' he said.

The aggressive approach in the directories market comes as Yell's directors sold a huge tranche of their stake in the group, after a contract expired forcing them to hold their shares for a year after the group's £2 billion flotation in July 2003.

BT started selling mobile phones this spring, but by July had only 144,000 customers.

Next year, the company hopes to launch a new product based on wi-fi technology. At home or in wireless hotspots - such as coffee bars and motorway service stations -customers will be charged only fixed-line phone rates.