BT said Thursday that it will increase the target for its fiber-to-the-premises (FTTP) network from 20 million to 25 million premises by December 2026, and it also opened the door to external investors for the first time by saying it will explore joint ventures to fund the additional 5 million premises.
BT CEO Philip Jansen said the company has now launched the process to evaluate potential partners, while he also categorically ruled out any plan to sell a stake in network arm Openreach.
"We're not excluding anybody, and we are very open minded," he said. In answer to a question during the analyst earnings call, Jansen agreed that KPN's recent formation of a fiber infrastructure JV with Dutch pension fund APG represents a good example of how BT could proceed.
The former UK incumbent made the announcement as part of its presentation of full-year financial results to March 31, 2021.
While Jansen said BT had emerged from this "challenging year" as a "stronger business with an even greater sense of purpose," and described the annual results as in line with its own expectations, the figures bear testament to the hugely negative impact of the COVID-19 pandemic with a decline in both revenue and EBITDA.
Total adjusted group revenue fell 7% to £21.3 billion (US$29.9 billion), while adjusted EBITDA was down 6% at £7.4 billion ($10.4 billion). Profit before tax was £1.8 billion ($2.5 billion), down 23% primarily due to the reduced EBITDA. Capital expenditure (capex) increased by 6% to £4.22 billion ($5.9 billion), primarily due to increased network and equipment investment.
Revenue has been in decline over the years, Jansen conceded. But he said regulation is "no longer a headwind," while a post-COVID-19 bounceback is also expected.
In terms of regulation, Jansen said a "number of uncertainties have now been removed," such as Ofcom's Wholesale Fixed Telecoms Market Review (WFTMR), with the decision not to impose caps on the wholesale prices fiber operators can charge for access for at least ten years, and the completion of the 5G spectrum auction.
In addition, as part of the 2021 Budget, the UK government introduced a 130% tax super-deduction for plants and equipment for the next two years.
According to Simon Lowth, chief financial officer, BT expects at least half of its capital expenditure in fiscal years 2022 and 2023 to qualify for the tax super deduction. "Based on this assumption, we expect to pay zero cash tax in the UK over the next two years," Lowth said.
BT said its 2022 outlook is for adjusted revenue to be broadly flat year-on-year, adjusted EBITDA to be £7.5 billion-£7.7 billion ($10.5 billion-$10.8 billion), capex about £4.9 billion ($6.87 billion), and normalized free cash flow between £1.1 billion-£1.3 billion ($1.5 billion-$1.8 billion).
It also said it will reinstate a dividend at an annual rate of 7.7 pence ($0.11) per share in fiscal year 2022, although no dividend is to be paid for 2021.
The increased fiber target certainly grabbed much of the attention amid the otherwise lukewarm financial figures. Most of the additional 5 million premises will be in towns and cities, with the remaining 1.5 million located in commercially viable rural areas.
Kester Mann, director, consumer and connectivity at tech analyst house, CCS Insight, noted that BT "has always maintained that its fiber targets were contingent on the right regulatory conditions that would enable it to make a fair return. It is now living up to its word."
Indeed, BT previously said it believes the regulator's WFTMR will allow it to earn a fair return on the around £12 billion ($16.8 billion) it aims to invest in FTTP.
Mann said: "BT finally has some wind in its sails. Its financial results may have proved another let-down, but the investment certainty it has long craved, combined with a positive outcome at the recent 5G spectrum auction and encouraging take-up on its existing fiber footprint suggest brighter times may finally be ahead."
BT said Openreach is passing 43,000 premises per week with its FTTP network and has now reached 4.9 million premises. The intention is to increase the annual rollout rate from 2 million premises last year to 4 million per year, at an average cost per household of £300-£400. BT intends to create an additional 7,000 jobs to help meet these more ambitious targets.
The operator also said it has just reached its millionth FTTP connection, after increasing by 73% to 905,000 connections in 2021. The consumer FTTP customer base grew by 269,000 to 753,000 while the 5G footprint doubled to 160 locations and the "5G-ready" customer base now stands at over 3.2 million.
The accelerated build process is clearly going to have an impact on spending, and BT has already indicated that capex will rise to £4.9 billion in fiscal year 2022. Lowth said the expectation is that capex will peak at £5 billion "as we complete the ramp-up" by 2026. After 2026, capex is immediately expected to drop by £1 billion.
BT further indicated that it is making good progress with its plan to achieve £1 billion in savings in three years and £2 billion ($2.8 billion) in five years. It achieved annualized savings of £764 million ($1.1 billion) in the first year with an associated cost of £438 million ($615 million), and also reduced full-time equivalent roles across the group by a net 5,600.
Problems to solve
In terms of more problematic parts of the group, Jansen conceded that BT Enterprise is still under pressure and the group remains cautious with revenue projections for now.
"Enterprise is going to be the place where we need to wait and see," he said, and noted that Rob Shuter, CEO of BT Enterprise, is due to set out a plan for the unit in June.
There was no update on discussions about possible future scenarios for BT Sport, whose revenues have also been somewhat battered by the pandemic. If anything, Jansen seemed a lot more bullish about the future of the unit, particularly because BT has just renewed its broadcast agreement in principle with the Premier League for another three years.
"Please don't assume we're going to do something," Jansen said. "BT Sport is in a good position, [it has] got complete clarity on its rights now. And we want to think, how do we make the most of BT Sport commercially? It's nice and viable now. How do we grow it, develop it and is there a partner that we could work with to do that? But ... nothing may happen, and we might carry on exactly as it is," he said.
- BT Sport sale would aid fiber rather than football focus
- BT fails to hit 4G heights with just 1M 5G customers
- BT on the back foot after 5G spectrum shake-up
- BT to build fiber 'like fury' after Ofcom ruling
— Anne Morris, contributing editor, special to Light Reading