UPDATE 3-Drahi lifts stake in BT to 18%, drawing defensive response from Britain

* Drahi lifts stake in BT to 18%

* Drahi says does not intend to make bid for BT

* UK says will act if required to defend critical assets

* BT says to serve all shareholders

* BT shares down 4%
(Adds details)

By Paul Sandle and Kate Holton

LONDON, Dec 14 (Reuters) - Patrick Drahi said on Tuesday he
had increased his stake in BT to 18%, drawing a defensive
response from the British government even though the
Franco-Israeli telecoms entrepreneur said he did not intend to
launch a takeover.

Drahi, BT's biggest shareholder who has pursued debt-fuelled
deals to buy assets in France, the United States, Portugal and
Israel, said he had engaged constructively with the board and
management of BT and looked forward to continuing that dialogue.

A person familiar with the situation said Drahi had notified
BT's new chairman Adam Crozier on Monday after the market had
closed. BT boss Philip Jansen and Crozier met Digital Secretary
Nadine Dorries on Monday.

The British government said on Tuesday it was monitoring the
situation closely and would not hesitate to act if required.

"The government is committed to levelling up the country
through digital infrastructure, and will not hesitate to act if
required to protect our critical national telecoms
infrastructure," a spokesperson said.

Shares in BT, Britain's biggest broadband and mobile
operator, were down 4% at 167 pence in early trade.
The 175-year-old BT is in the middle of a $20 billion
transformational programme to build a national fibre network, a
strategy crucial both to the company and the government which is
looking to boost regional growth levels.

While Britain has welcomed foreign investment and takeovers,
any bid for BT would put ministers in a difficult position due
to the national security implications of providing the country's
connectivity.

The former monopoly has been seen as vulnerable to a
takeover as its shares remain around 65% below 2015 highs,
prompting speculation that it could be bought before the
benefits of the fibre build start to materialise.

FULLY SUPPORTIVE

Drahi announced in June he had bought a 12.1% stake in BT,
worth 2.2 billion pounds ($2.9 billion) at the time.

He said on Tuesday that he continued to hold BT management
in high regard and remained fully supportive of its strategy to
play a pivotal role in delivering a full fibre broadband
network; "an investment programme which is so important to both
BT and to the UK".

Drahi had not requested a seat on BT's board, according to
the person familiar with the matter.

BT noted that Drahi's Altice UK had increased its stake.

"The board and management of BT Group will continue to
operate the business in the interest of all shareholders and
remains focussed on the successful execution of its strategy and
building on recent performance momentum," the company said.

BT's second largest shareholder is Deutsche Telekom
. The German company's boss Tim Hoettges said in
September it was weighing its options for its 12% stake and
expected some kind of movement in the next 12 months.

BT, led by Jansen, who made his own multimillion pound
fortune from the payments processor Worldpay, has recently
bolstered its takeover defences by hiring boutique advisory
group Robey Warshaw.

It also added change-of-control clauses to some of its bonds
and cut costs throughout the company.

Under British takeover rules, Drahi's statement that he does
not intend to make an offer for BT will bar him from such a move
for six months.

That commitment can be set aside however under a number of
circumstances, such as with the agreement of the BT board or if
a third party announces a firm intention to make an offer.

He increased his stake, at a price of 1.02 billion pounds
based on BT's closing share price on Monday, after a previous
six-months' standstill expired at the end of last week.
($1 = 0.7569 pounds)
(Reporting by Paul Sandle and Kate Holton; editing by Guy
Faulconbridge and Susan Fenton)

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