European Telecom News: BT Makes Room For HY Issuers

Whether the unbundling of Britain's local phone lines comes sooner or later, the increased competition among players wanting a piece of British Telecom's pie should bring some new opportunities for high yield investors, sources said.

Recent remarks by Gordon Brown, Britain's Chancellor of the Exchequer, calling for BT to relinquish control of the "local loop" sooner than July 2001, the original deadline, gives rise to the question of what the resulting competition will mean for the European high yield market, which is largely dominated by telecom issues.

While sources said that the timing issue is of less importance - partly due to the fact that bureaucracy will not likely allow the unbundling to take place much before its planned implementation - they agreed that the move should make for new high yield issues, more likely from existing companies expanding their business plans, but possibly from new players as well.

"It seems to me it makes more sense that an existing issuer will expand its business plan to do DSL [rather] than a new issuer coming in," a London-based telecom analyst said.

DSL, or digital subscriber line, is the technology that allows providers to speed up the service of a copper line.

Sources pointed to existing companies such as Colt Telecom Group, a pan-European provider, and Atlantic Telecom, which currently provides wireless local loops and could add a DSL component to its business, as possible winners in the unbundling game.

However, despite the advantage existing companies have, there is also the possibility that fledgling DSL specialists will enter the competition and translate into new high yield issues, sources said.

"The opportunity for high yield will be to help finance companies whose business models are DSL-based," said Patrick Steiner, vice president of high yield research for Chase Securities. "What they can do with DSL is offer video, offer high-speed Internet... offer on-line banking. The opportunity is for these guys to come in and offer high-speed services."

However, that may be tough, he added, with the competition from existing telecom and cable companies.

"You already have a few people out there, and I'm not saying there's not room for more, but it may not be as easy."

The push to get BT to unbundle its local loop began with government concern that the U.K. is lagging the U.S. and other European countries in Internet usage because of the high cost of its local phone service.

Brown stirred things up earlier in the month with a speech that called for a reduction in Internet costs to U.S. levels by 2002, and for BT to speed up its unbundling so Britain would not fall further behind the U.S.