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Future of Britain's communications giants remain uncertain

(Xinhua)
Updated: 2009-05-15 11:29

LONDON - Profits and job uncertainty are putting two of Britain's communications giants at risk.

The British postal service, Royal Mail, made significant profits last year but few believe it will be enough to turn the company around. Meanwhile, British telecommunications company BT has reported massive losses and is now facing similar problems with its pension fund.

NOT MAKING ENOUGH PROFIT

Royal Mail has seen its profits almost double over the last year. The state-owned service made a profit of 321 million pounds ($465 million) in the financial year ending April 2009, a rise from 162 million pounds ($235 million) a year ago.

The performance was hailed as a success by the Royal Mail "in the face of the worst economic conditions in decades."

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However, despite the record profits which covered all four sectors of the business, the government is continuing with plans to part-privatize Royal Mail, to fix the problems it faces with regards to its mounting pension fund deficit, falling productivity and outdated equipment.

Royal Mail acknowledged that challenges remained. The economic downturn, competition from electronic communications and rival postal services have resulted in a drop in mail volumes of some 5.5 percent over the last year, and a further decline is expected in the coming financial year.

For every one percent decline in business, it costs the mail service 70 million pounds ($101 million).

Royal Mail said more work also needs to be done to tackle the pension fund deficit, which doubled to 6.8 billion pounds ($9.86 billion) last year. The business has attempted to reduce this figure by injecting up to 800 million pounds ($1,160 million) a year into the fund.

As put by British Business Secretary Peter Mandleson, compared to the  pension fund deficit, the profits were too little, too late. "Today's figures show that while the headline profits are in the millions, the pensions deficit is in the billions and confirms that Royal Mail remains in a precarious financial position," he said.

But Royal Mail is not the only mail service that is struggling amid the the economic downturn.

TELECOMS ALSO HIT

British telecoms giant, the now privatized UK telecommunications operator known by its former name British Telecom (BT), has announced that it is shedding 15,000 jobs, 10 percent of its employees. The cuts are three times higher than analysts expected.

The British Telecom Tower is seen in central London May 11, 2009. Britain's BT Group cut its dividend on May 14, 2009, and said a further 15,000 jobs would go after a 1.58 billion pound ($2.4 billion) write down and restructuring at its Global Services unit drove it to a fourth quarter loss. [Agencies]

This came as the company reported an annual loss of 134 million pounds ($188 million) on Thursday.

The news of the job cuts badly affected BT's share price, which saw a further drop to 90 pence ($1.30) on Thursday, a fall of 8 pence ($0.11) in a year.

The company has also announced it will pay out lower dividends to its shareholders.

Profits have fallen for BT. In the three months up to March 2009 the company made a net loss of 977 million pounds ($1,416 million), as against a profit of over 400 million pounds ($580 million) in the same period last year.

BT is also struggling to deal with a massive pensions deficit, which it said that it would reduce by putting in more than 1.5 billion pounds ($2.17 billion ) into the scheme over the next three years.

At the end of March 2008, its pension scheme had a surplus of 2.9 billion pounds ($4.2 billion), but this figure had become a deficit near to 4 billion pounds ($5.8 billion) by March this year. Some in the financial world even suggest the figure could be much higher.

One independent pensions consultant says that BT is little more than a hedge fund running as a phone network. John Ralphe, who was once head of corporate finance at Boots, a British pharmaceutical company, has said that an actuarial deficit less than 11 billion pounds ($16 billion) was "wishful thinking".

"Given the scale of pensions in relation to its market cap, BT is the UK's largest pension scheme that just happens to own a telecoms business," Ralphe said.