BT Group plc (ADR) (BT)

RandomWalk07 (44.45) Submitted: 12/14/06 4:06 PM : Start Price: $56.86 BT Score: -35.28

Was beaten down following overpayment for UK 3G licence. Forced to sell mobile arm (O2) to pay down some of the debt. Today debt is manageable, although pension liabilities are a concern.

Because BT used to be the monopoly phone supplier in the UK, most UK investors look on BT as a stodgy old phone company. Naive investors look at the retail division of BT and worry about the drain of broadband customers to other suppliers. I think they're missing the real story.

The play with BT is their infrastructure division servicing the multinationals. BT will build a worldwide IP network and as the business world moves to an increasingly interconnected, outsourced, ASP'd world these networks become essential. BT are a leader in this area - and once a company has signed up for such a major contract it is not easy to move providers. The BT retail division will continue to throw off good revenues and with the help of some innovative services (IP TV etc) may even grow significantly - although competition is high. Think of retail income as akin to a utility, regulated, boring (maybe), competition, not much growth but providing lots of cash for low risk. The global services is the growth engine that is slowly getting up to speed.

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