Could fi­bre ca­bles lift BT out of a hole?

Why a faster broad­band net­work may save the gi­ant

Scottish Daily Mail - - City & Finance - by Matt Oliver

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 (pic

tured) 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.’

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