British Telecom seems to learn nothing from its costly forays into foreign markets. A year ago we reported on the company's disastrous purchase of the Canadian switch manufacturer, Mitel (Management Today, April 1990). That experiment has so far cost BT in excess of C$570 million (£260 million). Now, with a 20% share in McCaw Cellular Communications, bought 18 months ago, chairman Iain Vallance is bracing himself for another fiasco.
To be fair, mobile telephones looked like a goldmine: doubters had only to look at the huge profits which early investors in the market were realising. So, keen to cash in on the biggest telecommunications market in the world, BT paid $1.5 billion for a stake in the McCaw family car phone firm, anticipating massive profits by 1992 or 1993 at the latest. In doing so the company has blindly repeated the Mitel mistake - entering the market late, with ambitious growth predictions, and above all paying way above the odds for the opportunity.
The first signs of trouble came when forecasts proved optimistic. Even the most bullish of analysts now think that it will be 1994 or 1995 before there is any return on the investment. Others think that the picture is much bleaker. They say that recession has, if not killed the golden goose, at least left its fertility severely impaired. New mobile phone users in the United States dropped by 11% last year, the number of people returning their phones after the first month doubled, and the average monthly bill has dropped by as much as 16% to $84.
But maybe we are being too harsh - at least Mitel and McCaw represent commercial risk taking. The company's latest plans to spend money have not even got this going for them. At a massive cost (maybe as high as £200 million) the company plans to change its name officially to BT. One hundred thousand engineers' uniforms will change, 86,000 pay phones will have the new logo inserted, 66,000 vehicles will have to be repainted and 90 shops redecorated, not forgetting the removal of "British" from the Telecom tower.
BT seems all too capable of using its effective domestic monopoly to make huge profits in the UK, but incapable of competing in open markets. Let us hope that the break-up of the BT/Mercury duopoly can inspire better decisions in future than the Mitel and McCaw purchases.