Could fibre cables lift BT out of a hole?
Why a faster broadband network may save the giant
CAN BT get its mojo back? That is the question on the lips of investors who have watched as the company endured a pretty torrid few years.
With new boss Philip Jansen ( pictured) at the helm, a slick rebranding and the rediscovery of its mission to be a ‘national champion’, there are promising signs that recovery could be on the cards.
The 52-year-old former Worldpay executive, who took over in February, has the unenviable job of dragging BT back to its feet.
He has renewed its focus on broadband, vowing to ramp up the roll-out of cutting-edge fibre cables across the country, and he has sought to rebuild staff morale with share schemes, so they have a stake in any future success.
But it’s not easy. BT is ploughing ahead with 13,000 job cuts and is trying to make £1.5bn in annual savings. In an unprecedented overhaul, it is also ditching 270 of its 300 offices.
It is a world away from just four years ago, when BT looked to have regained its swagger. The telecoms giant launched a sports channel and had triumphantly snatched broadcasting rights to Champions League football from Sky. The then boss, Gavin Patterson, was eyeing yet another audacious move: a £12.5bn swoop on mobile network EE.
As shares hit brief highs of 500p – not seen for 15 years – you might have been forgiven for thinking the company was on the path to glory. But it was not to be. When Patterson left in January, the shares had halved in value – and they are now down more than 60pc from those lofty heights. In little over three years, BT was rocked by an Italian accounting scandal, battered by complaints about customer service and dragged down by sluggish sales growth and ballooning pension costs. Meanwhile, the billions that it had splashed out on the football rights simply angered customers who were struggling with slow broadband.
Examining its latest results last week, the picture still looks gloomy. BT unveiled a 1pc drop in half-year revenues to £11.47bn, while profits were almost flat at £1.33bn. That was mainly down to regulatory caps on how much it can charge for services continuing to bite, as well as falls in the money it makes from traditional phone calls as more services become digital.
Profits have also been squeezed by BT’s investment in its network – its main priority since Jansen took over. Perhaps the only bright spot for investors was news the company expected to hold its fullyear dividend at 15.4p, despite growing doubts about whether it can continue to afford it. Bundled together with tough competition in the telecoms market and general economic uncertainty, it has helped to keep BT’s share price hovering near a cheap 200p.
Yet Joe Healey, an investment research analyst at The Share Centre, said there are still reasons to be optimistic. He believes BT’s fibre rollout, via its cables arm Openreach, is the company’s secret weapon. Fibre offers vastly faster speeds than the copper wires that currently run into most homes, while also being much cheaper to maintain.
Only 7pc of the country’s 32m premises – or about 2.2m – can access fibre broadband, making it a massive prize for whoever can get to them first.
BT is aiming to reach 4m premises by 2021, but Jansen wants to go further. He has promised to supercharge this to 15m by the mid-2020s if regulators make it worth BT’s while and allow it to charge more. And because the cables can handle much larger amounts of data than households currently use, experts say they will also be ‘future-proofed’ for years to come. That makes a ‘promising proposition’ for shareholders, Healey says.
The problem is that rolling out fibre is expensive. To make things easier,
BT wants the Government and regulators to lower taxes on the new cables it lays, give it easier access to land and buildings, and guarantee that it will get a return on its investment by loosening restrictions on what it can charge for broadband packages. BT calls this the ‘fair bet’. But it has yet to secure full-throated backing from ministers and Ofcom, the telecoms regulator which it clashed with repeatedly under Patterson. Jansen has called on the Government to take ‘decisive action’ and promised that, if BT’s demands are met, he will deliver. But analysts at Jefferies suggested the price of this may be a dividend cut as a ‘tactical concession’ to show it is not just prioritising payouts to shareholders. Yet if Jansen manages to navigate these waters – still a big ‘if’ – the path to growth looks far more promising. So is now the right time to invest in BT shares? ‘ Despite the concerns, Jansen does bring a fresh mindset and, so far, seems to be the right man,’ Healey says. ‘With BT’s restructuring well under way and projects starting to show good progress, it’s fair to say this represents a good entry point.’