British Telecom: Likely to Never Regain Past Glory

| About: BT Group (BT)

BT, one of the most famous UK corporate brands, can trace its history back to 1912 when the fledgling telephone network was nationalised and assimilated into the Post Office organisation. The telephone division remained under Post Office control until 1981 when Margaret Thatcher’s administration separated the group into two entities and deepened her plans to privatise BT. Privatisation of the telephone network was ‘executed’ in 1984 with 50.2% of the new BT shares offered to institutions and the public. In the early years, post privatisation, BT continued to enjoy a near monopoly, and the introduction of Mercury as a first competitor made little headway into BT’s firm grip on market share.

However, as more and more entrepreneurial and competent players moved into BT’s area of influence, like Virgin (NASDAQ:VMED), TalkTalk, Carphone Warehouse (OTC:CRWHF) and innumerable other telecom players, BT’s standing, market share and reputation have steadily been eroded. The consumer trend of reduced fixed line usage in favour of mobile phones and the lifestyle changing development of the internet and broadband have further weakened BT as it has tried to move its business model from its fixed line comfort zone to embrace the needs of 21st century consumers.

The opportunity to regain past dominance is probably lost forever. BT’s problems run deeper than the growing success of slickly branded cell phone competitors. Even the company admits customer service needs to be improved. But such an admission hardly scratches the surface of deeply troubling issues and the depth of frustration suffered by some customers and all long term investors. The shares have recovered well from their 12-month low of 70p and now stand at 110p (LSE listed BT.A) but are a world away from their 5-year high of around 330p.

The firm suffers from a crippling pension deficit, a constant stream of negative press coverage, the looming threat of more job cuts which can do nothing for staff morale and a reputation for customer service that only time, decades of it, can fix.

The 2009 rally, since March, has given long suffering shareholders a chance to bail-out at over a pound a share and if I held stock, I would sell it at the speed of a thousand gazelles. In fact, in recent years, given the choice between suffering BT call centres and/or buying BT shares is akin to being asked if you would like to be poked in one eye, or both.