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British Telecommunications - Assignment Example
Pages 12 (3012 words)
British Telecommunications, which once enjoyed freedom from competition as a government monopoly, is now facing unprecedented challenges from communications providers in every part of the world in which it operates. Over the next several years, BT will continue to confront price pressures in its broadband unit, declining residential phone service sales and a need to keep pace with the rapid technological development occurring in its various industries (BT Group 2006).
2) BT's current focus on cost savings and retained earnings to fund operations has created heightened investor confidence and has made the company leaner, which will help it compete effectively in markets facing price pressures (Engebretson 2003).
3) As BT makes capital structure decisions going forward, it should adhere to the 'pecking order' philosophy of capital structure, which states that a firm's first choice for financing should be internal funding, followed by debt and then the issuance of equity (Liesz 2001).
Like many firms throughout the world, BT became caught up in an acquisition frenzy during the late 1990s and at the turn of the century. In the process, BT relied on a capital structure that was very dependent on bank debt to finance its activities.
Richard Fairchild points out that BT management consistently increased the company's level of debt from 1998-2001 and, in the process, investor confidence eroded (Fairchild 2003). Perhaps BT, as a former government monopoly, does not attract investors looking to assume a high level of risk. ...
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