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O2 cut loose

BT free of wireless arm, but not wireless debt

BT's demerged mobile arm, O2, was floated on the stock market yesterday. The demerger has received widespread criticism from rival operators, MPs and Trade Unions. But what impact it will have on BT's customers remains to be seen.

O2 will separate from BT carrying £500m of BT's £28bn debt mountain. This, rather bizarrely, leaves BT to carry the £8.2bn debt it incurred buying the 3G licences that O2 will eventually use to provide third generation wireless services.

Connect, the union for telecommunications workers, campaigned against the demerger not only because of the probability of job losses but also because it would mean BT was "saddled with huge debts", said the union, debts arising from its investment in mobile assets, "crippling it with payments for future operations that are no longer a part of the company".

The worry is that BT's fixed-line business will be weakened and will will have to find a way to meet repayments, while O2 gets away virtually scot-free.

O2 marketing director David Nicholas was keen to emphasise the benefits of a demerged mobile company. "It will mean our management is purely focused on the mobile industry which will mean we are able to concentrate all our efforts on one goal," he said.

BT said its fixed-line customers would not suffer higher bills as a result of the debt, and highlighted that BT was already ahead in its repayments.

Jan Ten Sytoff, telecoms analyst at research firm Frost & Sullivan, thinks it is too early to predict the long-term impact of the move. He said any negative effects created by the debt will "harm BT far more than its consumers".

"If BT's debt does mean they cannot reduce costs for fixed-line customers as [efficiently] then it will be BT that will suffer. If it becomes uncompetitive then customers will find themselves a new operator."

Existing BT Cellnet contracts will not be altered with all terms and conditions remaining the same at this point remain the same. From today BT will no longer have control over O2.

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