EE to Report Sales Growth for 'First Time'

Mobile operator EE, now subsumed into the BT empire, is set to report revenue growth for the recent October-to-December period, BT revealed in a statement this week.

The detail was included in BT's update about accounting problems in Italy and largely overlooked in coverage of the latest misfortune to befall the UK telecom incumbent, whose share price lost a fifth of its value on the London Stock Exchange yesterday. (See BT's Patterson Feels Italian Heat and Dodgy Italian Job Savages BT Earnings, Share Price Tanks.)

In a brief reference to the mobile operator, BT Group plc (NYSE: BT; London: BTA) said that EE had achieved revenue growth "for the first time," without disclosing more information.

The extent of the sales rise at EE should become apparent on Friday, when BT is due to report its third-quarter results, but the mobile operator, which maintains the UK's biggest mobile network by customer numbers, saw mobile service revenues decline annually between 2011 and 2015 -- a period in which it launched high-speed 4G services. (See EE: New Tech Is Mobile Revenue Savior and 5G: Another Next-Generation Disappointment?.)

Although its overall revenues increased between 2013 and 2014, that growth owed everything to the introduction of broadband and TV services in 2014.

In that context, BT's "first time" reference is somewhat ambiguous. While the operator could be referring to growth in mobile service revenues, it is obviously talking about a specific quarter, rather than a full year.

It might simply mean that EE's revenues have grown for the first time since BT completed its £12.5 billion ($15.7 billion, at today's exchange rate) takeover early last year.

When reporting results for the July-to-September quarter, BT revealed that EE had generated about £1.277 billion ($1.606 billion) in sales -- about the same as in the year-earlier quarter. EE had then continued to grow its base of contract subscribers but lost a bigger number of prepaid customers.

Whatever the precise details, revenue growth in the third quarter is a welcome development given BT's other problems.

It might even point to some early success at "cross-selling" -- that is, persuading long-standing fixed-line customers to take up EE's mobile services -- although there has been little sign of any marketing push in this area.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

Nevertheless, the tie-up between the UK's biggest fixed and mobile operators was always going to make life difficult for the country's other service providers, and the very fact of revenue growth at EE implies that rivals have lost out.

Telefónica UK Ltd. (trading as O2), Vodafone UK and Three UK all lack fixed-line assets and look increasingly vulnerable as companies like BT, cable operator Virgin Media Inc. (Nasdaq: VMED) and pay-TV giant Sky make a push into the mobile market. (See Eurobites: Sky Launches Mobile Offer.)

Telefónica UK and 3 had hoped to counter the BT/EE threat through their own merger, which would have created a new mobile market leader, but their plans were scuppered by regulatory authorities. (See Eurobites: O2/3 Deal Facing EU Veto.)

Vodafone, meanwhile, is regularly linked with interest in Virgin Media and parent company Liberty Global Inc. (Nasdaq: LBTY), having already merged its Dutch business with Liberty-owned Ziggo B.V. (See Eurobites: Liberty-Vodafone Dutch Merger Set for EU Approval – Report.)

In the current climate, the concern for all players is that currency weakness drives up the cost of living for many consumers, prompting some of them to cut spending on communications services.

The pound has fallen sharply since UK citizens voted to leave the European Union during a referendum last June. (See What Hard Brexit Means for Vodafone, BT.)

A gloomy outlook in public sector and international corporate markets, combined with the Italian woes, triggered a 20% fall in BT's share price on Tuesday.

Shares have gained about 1% today in morning trading but are still worth about a fifth less than at the start of the week.

— Iain Morris, , News Editor, Light Reading