Outlook: Good start as BT goes for the Yellow

IF YOU believe Hans Snook, managing director of Orange, nearly all voice telephony will be mobile within 10 years. While this view may still look a trifle exaggerated, it has to be admitted that many of Mr Snook's predictions about the future of telephony are starting to seem a lot more believable than they did. And if Mr Snook is right about these things, then British Telecom, the incumbent monopoly player, is going to find its traditional revenue base, and therefore its existing business model, under assault in a much more serious way than hitherto imagined.

Fortunately for BT, the market is growing at such a pace that it may be possible for the company to cede great chunks of market share without unduly damaging the bottom line. However, to do so BT will have to change out of all recognition, for the real growth is not in voice telephony, but in data, and particularly the Internet. According to some estimates, data traffic is doubling every three months. We are now long past the point at which data became a majority of all telephone traffic.

From a business perspective, then, voice telephony may not matter very much in the long run; ultimately it can be expected to account for only a relatively small part of the market. So far, BT has shared the benefit of the explosion in data. But with prices falling as fast as the traffic is rising, and newcomers able much more cost effectively to harness the new technologies, BT's position is plainly a perilous one.

Saddled with a multi-billion pound investment in an outdated infrastructure, BT's passage to the new world is fraught with difficulties. The brave thing to do, perhaps, would be to write off the old investment and begin afresh, but even the most avid of City believers in BT's growth prospects would find it hard to swallow that one.

In some ways, the challenge faced by BT is similar to that of the traditional high-street banks, who have to carry the cost of their old branch networks while attempting to migrate the customer base onto the low cost forms of telephone and internet banking being offered by newcomers to the market.

The acquisition of Yellow Book USA for $665m (pounds 430m) ought to be seen in this context. At three times sales, this seems an extraordinarily high price to pay for the New York equivalent of our own yellow doorstoppers. But viewed as an Internet company with quite substantial e-commerce opportunities, it seems a steal.

Within a few years the yellow telephone directories will be gone and in their place will be an Internet portal into all kinds of cyberspace opportunities. If all goes according to plan, BT will end up getting not just what businesses pay to be in Yellow Pages, but a small percentage of each e-commerce transaction thereby generated as well.

It shouldn't come as any surprise that BT has e-commerce ambitions, although the company has tended to be quite silent about them to date. If BT is to survive as anything other than an ageing and commoditised backbone infrastructure company, it is going to have to expand very aggressively into these new areas of application for traditional telephony. This acquisition looks a reasonable start.