BT executives lay into the doubters as the carrier reports better than expected financial results

May 19, 2006

7 Min Read
Upbeat BT Tweaks Critics, Rivals

BT Group plc (NYSE: BT; London: BTA) executives struck out at its critics, doubters, and rivals as the carrier reported better than expected financials and an upbeat outlook. (See BT Reports Q4 Prelims).

The carrier's fourth-quarter revenues were up 7 percent year-on-year to £5.1 billion (US$9.6 billion), and full financial year (to March 31) revenues were up 6 percent to £19.5 billion ($36.8 billion). Full-year profits before tax and specific items were up 5 percent at £2.2 billion ($4.1 billion).

And as before, revenues from so-called "new wave" services -- broadband, IT and managed services to large corporate customers, and mobility -- grew in the fourth quarter, this time by 28 percent to £1.85 billion, representing more than a third of the period's total revenues. (See 'New Wave' Drives BT.)

In its quarterly report, BT says all this "underpins our confidence that we can continue to grow revenue, EBITDA, earnings per share and dividends over the coming year," with revenue growth fueled by the "new wave" services.

The positive numbers and bullish forecast sent the operator's share price up 17 pence, about 8 percent, to close Thursday at 226 pence ($4.23) on the London Stock Exchange .

In an emailed research note, analysts at Lehman Brothers said it was "a good set of results" and raised the stock's price target to 280 pence ($5.24). They are encouraged by signs of profitability from the large managed services contracts BT has been winning with international corporate customers, and believe the expected capex and staff cost savings from its next-generation network project, the 21CN, will boost the carrier's margins as the project progresses.

But while BT's executives were happy to boast about fiscal matters during their presentation, they were equally keen to persuade analysts and investors that:

  • All is well with its planned network migration to the all-IP 21CN;

  • Web-based service companies such as Google will not be taking a free ride on that new infrastructure;

  • It isn't bothered by attention-grabbing offers from broadband competitors;

  • Its IPTV plans are on track and will provide an attractive proposition to the U.K.'s square-eyed nation.

21CN progress
CEO Ben Verwaayen said the £10 billion ($18.8 billion) 21CN project is proceeding as planned, despite what has been reported in the press. (See BT Says 21CN Deadline Hasn't Moved.)

He said the timetable for the initial next-gen network rollout in South Wales -- a project known as Pathfinder -- hasn't changed, that the preliminary preparation work is complete, and that the migration of customers from the PSTN to the new network will start in late October this year. (See Wales to Get 21CN First and BT Takes 21CN 'Baby Step'.)

That 21CN activity meant BT's capital expenditure in the three months to March 31 was significantly higher, at £591 million ($1.1 billion) compared with £442 million ($828 million) a year earlier.

The CEO also provided a 21CN timetable for the next few years. With the eight major preferred vendors signed up, but more supplier engagements to come, the core network build-out is due to be completed in October this year, while the migration of the local exchanges for Pathfinder will be finished about the same time. (See BT Closes 21CN Deals, Touts IPTV and BT Issues 21CN Ethernet RFP.)

In the January to June 2007 period, said Verwaayen, all 350,000 of BT's customers in the Pathfinder region will be migrated onto the 21CN, to be followed by an in-depth review of that project with other carriers, customers, the regulator, and other telecom industry bodies.

That customer migration timetable for South Wales, though, appears to have slipped recently, as BT told Light Reading only weeks ago that the Pathfinder handover would be complete in March 2007. (See BT Says 21CN Deadline Hasn't Moved.)

Looking further ahead, Verwaayen said early 2008 would see the beginning of the U.K.-wide migration of customers onto the new network, and launch of next-gen broadband services based on ADSL2+ technology, following a six-month broadband testing and development process in the second half of 2007.

To Page 2

BT's broadband battles
BT has no shortage of broadband competitors in the U.K. -- in addition to cable operator ntl group ltd. (Nasdaq: NTLI), which has more than 2.5 million cable broadband users, there are 200 ISPs touting DSL services to consumers and businesses. Currently, BT has 2.6 million retail DSL customers, a 33 percent share of the total retail DSL market of 7.9 million connections.

And the competitive landscape was made tougher recently, when Carphone Warehouse Group plc (London: CPW) announced a "free broadband for life" offer. Has this affected BT in the past month or so, wondered analysts? (See Free Broadband Comes to the UK.)

"We haven't seen any changes in broadband trends," replied Ian Livingston, CEO of BT's Retail division, adding that BT's approach is about delivering real services and value to the market, "and not just PR. It [free broadband] is a very clever offer, but we'll be launching services that will be more than just marketing, and we'll be launching them across the whole of the U.K., and not just parts of it."

BT's chairman, Sir Christopher Bland, chipped in that "free is not a sustainable business model," adding that customers should examine the small print and consider how Carphone Warehouse will reap back the capex involved in its local loop unbundling project.

So what does BT have up its sleeve? All the carrier is saying for now is that it will soon launch a range of converged services based around the home gateway product -- called BT Hub -- it has developed to deliver multiple high-definition VOIP channels and video calls, and provide home security and digital storage capabilities. (See BT Gets a Gateway.)

And in terms of access infrastructure, BT is sticking with its copper plant and has no plans to replace it with fiber. BT Wholesale CEO Paul Reynolds said "copper is there in our network, it works, and there's plenty of upside from DSL technology to come," but that fiber's cheaper operational costs mean it will be deployed in any greenfield builds.

BT Retail's Livingston said Fusion, the carrier's fixed/mobile convergence (FMC) service that combines regular mobile telephony with an in-building voice-over-broadband service, now has more than 30,000 customers connected.

He added handsets that enabled an 802.11x WiFi connection in users' homes, in addition to the current Bluetooth models, were expected around September time, but that would depend on when the handset vendors could source the appropriate chipsets. (See BT Offers New Fusion Phone.)

Adding WLAN capabilities to the handsets will boost the service's value to customers if BT allows Fusion customers to roam onto wireless access points in urban areas. That's clearly something BT has in mind, as it is building out 12 wireless city networks based on 802.11 technology. (See BT Plans Wireless Cities.)

Livingston also claimed that BT has started a trend that the mobile operators are now copying. "We have started something very big. The mobile operators have also decided now that this is the way to go." (See DT Outlines Strategy).

The BT Retail man is also preparing for the launch of the carrier's IPTV service, called BT Vision, due to become available in the second half of this year. Livingston said the service will include access to more than 1,000 films and TV content, and he talked up a new deal the carrier has just signed. (See BT Snags DreamWorks Content and BT Unveils IPTV Service.)

Livingston, though, says providing mainstream content such as Hollywood movies isn't enough to give BT an edge over such TV and video service providers as NTL and Sky : "We will focus on interactivity as well as supplying great content -- that's why we are calling it next-generation TV… [that] will differentiate ours from other video services. Self-generated content will be much bigger than community content has been."

— Ray Le Maistre, International News Editor, Light Reading

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like