British Telecommunications Plc's &lt;BTY.L>profit growth prospects for the coming years will be reduced by
increasing competition and continued costs for replacing old
telephone systems, deputy chairman Graeme Odgers said.
    Speaking at a news conference on the third quarter results
which were released earlier today, Odgers said the company
faced heavy costs for installing new digital telephone systems
in Britain for three to five years.
    He said &lt;Mercury Communications Ltd>, a Cable and Wireless
Plc &lt;CAWL.L> subsidiary, was becoming a significant competitor.
    Odgers said Mercury was seeking to make inroads into some
of British Telecom's most profitable areas.
    One company official privately estimated that British
Telecom still had a 99 pct share of the U.K. Telecommunications
market but feared that this could slip to 95 or 90 pct.
    The recent two-and-a-half-week engineering strike, which
lead to some disruption in service, could well have encouraged
clients to consider using the Mercury system, Odgers said.
    However, he forecast that the last quarter's results
overall should not be adversely affected by the walkout.
    He calculated salary savings as a result of the strike at
50 mln stg and while loss of income on telephone calls should
be limited revenue probably dropped on peripheral activities.
    But on balance Odgers said that group's financial strength,
economies of scale and the fact that it operates in a growth
industry will help produce annual profit increases for the
forseeable future.
    British Telecom will also seek to expand into
manufacturing, he said, adding that research and development
expenditure will rise both in terms of value and compared with
the current proportion of two pct of overall turnover.
    Analysts said the company's downbeat forecasts helped
shares dip to 242p in mid-afternoon, down 4p from yesterday's
close and off an early high of 248p.
    Philip Augar of stockbrokers Wood Mackenzie and Co Ltd said
the market expects slower profit growth, but forecast a seven
to eight pct rise in both earnings per share and pretax profit
over the next two years. In the 1985/86 financial year, pre-tax
profit rose to 1.81 billion stg from 1.48 billion.
    Augar noted that a government-imposed formula linking
charges to inflation meant that the company's scope for raising
prices was limited as long as inflation remains low.
 Reuter
