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British Telecom prepares for prime time

BT transforming itself into a media company

Britain's long wait for broadband Internet access is over, but British Telecom’s transition from telephone conglomerate to media company has just begun.

This week, British Telecom rolled out a broadband service, BT Openworld, though a backlog of "pre-registered" subscribers will have to wait for months to have it installed.

Despite the delay, British Telecom managed to beat Freeserve, the nation's largest ISP, to the market by one week. (Freeserve went live 4 September).

The introduction of broadband service marks an even more fundamental change for the once state-owned British Telecom. And an impending change in British law will enable it to remake itself as a media company.

In January 2001 a law that prevented British Telecom from broadcasting is set to expire, and as revenue from telephone services dwindles, BT is looking to make the improbable leap from conduit to provider of content.

The transformation is taking place on the third floor of a faceless concrete block on the banks of the River Thames. Two stories above an enormous telephone exchange, BT Openworld's staff of 450 work in open-plan offices equipped with bean-bag chairs, a coffee bar and a terrace overlooking the river.

At the centre of this effort is an American, 36-year-old John Raczka, a former executive at Hanna Barbera and Sony Pictures. As senior vice president of consumer content, Raczka is busy acquiring the rights to content from the BBC, the Turner Network, CNN, the Cartoon Network, Reuters and others. "You name a major media company and we're talking to them," Raczka says.

Most of the deals he's signing are with U.S.-based companies, reflecting the fact that 70 percent of European Internet traffic is still pointed to U.S. sites.

Most of the deals are revenue sharing arrangements with no money changing hands. But Raczka has acquired the exclusive rights to some select content that BT will syndicate to other broadband players around the world.

BT Openworld has secured exclusive rights to the Sundance independent film channel in the U.K., a Showtime animated series called Whirlgirl, House of Blues concerts and the upcoming Sting concert tour.

The site operates much like AOL: When users log on, they are presented with a number of channels with content specifically tailored for broadband connections. They can either linger at BT Openworld's content offerings or go straight to the Internet.

At launch, 10 of the planned 21 channels are up and operational, though the offerings consist mostly of Reuters news feeds, jerky news clips and videos of extreme sports. A click on the "Automotive" channel seems to sum up BT Openworld in its infancy: "Content for the channel is coming soon."

Raczka knows that time is of the essence. Freeserve, which is rolling out its broadband service next week, has 50 content partners, including Virgin Records, ITN Radio and gameplay.com. Raczka says that by the time Freeserve launches he will have content from 60 sources loaded and ready to stream.

Before long, BT Openworld and Freeserve will be joined by a dark-horse broadband player, Excite Chello, which was formed by the merger of ExciteAtHome and Chello, a European broadband cable network, in July.

British Telecom may own the pipes, but its bloodlines put it at a distinct disadvantage to companies already experienced in providing content.

"Historically telcos have not been good at turning themselves into media companies," says Nick Jones, a media analyst at Jupiter Communications. The two exceptions, Jones says, are France Telecom, which gained experience providing content for the Minitel system, and Deutsche Telecom, which operates T-Online, the biggest ISP in Europe.

"They've had 10 years to change from thinking network to thinking media," Jones says. "BT hasn't had the time."

The rollout of BT Openworld comes soon after the company was forced to spend £9.3 billion for third-generation wireless licences here in Britain and in Germany. The licences pushed BT's total debt up to nearly £30 billion, fuelling speculation the utility will have to merge with a foreign company, such as AT&T or Spain's Telefonica, to survive.


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