"Utter, utter rumor and speculation," is how BT Group plc (NYSE: BT; London: BTA) describes today's industry rumor that a group of private equity companies is lining up a £20 billion (US$35.1 billion) bid for the U.K. incumbent.

The scuttlebutt, started by an article in The Times newspaper, sent BT's share price up 9 pence, more than 4 percent, to 217 pence in morning trading on the London Stock Exchange , giving the carrier a market value of £18.1 billion ($31.8 billion).

BT, though, is adamant that no talks have taken place. "We haven't been approached by anyone with any sort of bid," says a spokesman.

The Times reports that private equity firms have been checking out BT as a potential acquisition target, but have identified potential pitfalls related to the complexity of any such bid and the carrier's pension deficit, which stood at £3.8 billion ($6.7 billion) a year ago.

While the talk appears to be nothing more than speculation at present, Daiwa Securities SMBC Europe Ltd. telecom analyst James Enck notes that, while such suggestions have surfaced and then disappeared in the past, "maybe what's different this time is that the company has de-leveraged hugely, the company is structurally more suited to a breakup, and the Chairman and CEO are sitting on a successful turnaround story. I could certainly see a case for exiting on a high note."

BT is currently in the throes of a major transformation as it strives to migrate from its circuit-switched past, where traditional voice delivered the revenues, to an IP-based future with a greater reliance on what it calls "New Wave" services, such as broadband, managed corporate services, and fixed/mobile convergence products. (See 'New Wave' Drives BT, BT Takes 21CN 'Baby Step', and Vendors Sign BT 21CN Contracts.)

Its latest technical shift came this week as BT announced a broadband access network upgrade to 8 Mbit/s, a bandwidth boost necessary for the carrier's plans to launch video services to its DSL customers later this year. (See BT Beefs Up Broadband, BT Takes Swype at Skype, and BT Touts Next-Gen Services.)

Also this week, the U.K. regulator Ofcom revealed there are now more than 10 million broadband connections (DSL and cable modem) in the U.K., and noted that annual retail telecom revenues in the U.K. grew in the 12 months to September 30, 2005, by more than 6 percent to £37.2 billion ($65.3 billion). (See Ofcom Publishes Interim Report.)

Private equity interest in European carriers has been high in the past year. Danish incumbent TDC A/S (Copenhagen: TDC) was acquired by a group of buyout firms in January, while KPN Telecom NV (NYSE: KPN) and Tele2 AB (Nasdaq: TLTO) have also been identified as a potential targets. (See Breakup Talk Swirls Around Tele2, Dutch Put KPN on the Block, NTC Completes TDC Offer, and Eurobites: A Private Affair.)

And it seems only a matter of time before Irish national operator eir comes under new management, as private equity firm Babcock & Brown has raised its stake in the carrier to 23.5 percent and is in talks with Eircom's management about the possibility of a full bid. (See Eircom in Takeover Talks.)

— Ray Le Maistre, International News Editor, Light Reading