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November 9, 2006
BT Group plc (NYSE: BT; London: BTA)'s 21CN next-generation network project will run over schedule by a year, with the final 20 percent of broadband and voice connections migrating to the new all-IP network in 2011, the operator's CEO said during today's second-quarter earnings presentation. (See BT Reports Q2.)
The carrier has repeatedly stated, since it first outlined its grand plan in June 2004, that the business case for the £10 billion (US$19 billion) 21CN project depends on decommissioning its 16 legacy networks by the end of 2010. (See BT Moves Ahead With Mega Project.)
But in April this year, cracks in the deadline started to appear, though the carrier played down the magnitude of any extended life for its PSTN. (See BT Says 21CN Deadline Hasn't Moved.)
The overhang, though, is not insignificant. CEO Ben Verwaayen today laid out a revised migration plan showing that, in 2010, only 80 percent of BT's broadband and voice connections will have been migrated to the new platform, with the remaining 20 percent switching across in 2011.
That means a significant chunk of BT's legacy infrastructure will still be in commission in 2011, a scenario at odds with the project's tight business plan.
But the carrier is defying any suggestion that the new timetable will affect its balance sheet. Verwaayen told analysts at today's results meeting that the cost of the project hasn't changed, and a BT spokeswoman added that the business case also remains the same.
That business plan includes a reduction in annual operating costs of £1 billion ($1.9 billion). (See BT Moves Ahead With Mega Project.)
Executives involved in the 21CN transformation have noted on a number of occasions that they're learning as they go and constantly making changes and new decisions, so confirmation of the extension will surprise few people. And that learning process is also leading to new revenue opportunities. (See BT Rethinks 21CN Core Strategy, Ubiquity Leads New Round of 21CN Deals, BT's Learning From Google, and BT Cashes In on 21CN.)
Even with the adjustment, BT's 21CN timetable is still very aggressive. The first residential customers will be migrated onto the all-IP network in Cardiff, Wales, at the end of November, followed by a further 350,000 customers in the region in and around the Welsh capital over the following nine months. (See BT Plans Welsh Migration.)
Verwaayen says 21CN network upgrades are ongoing in 100 U.K. cities at present, that about 10 percent of the next-gen core network is built and operational, and that 75 million trial voice calls have gone across the new infrastructure.
BT vision for Xmas
The other BT timetable of interest to analysts, peers, suppliers, and customers is that surrounding the launch of the carrier's IPTV service, BT Vision. (See BT Unveils IPTV Service.)
The carrier has been saying for a while now that it will launch the service "this Autumn," which, it points out, ends on December 22. "I've become an expert on the seasons," quipped Ian Livingston, CEO of BT Retail, the division that will market and sell the service to U.K. consumers.
He refuted suggestions that the launch would be low key and limited -- "We are going to be very ambitious, and there are going to be some very exciting services" -- though he said the service would "build up" from its initial launch.
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BT is doing its IPTV service differently from many other carriers. It has commissioned set-top boxes that include a connection for delivery of broadcast TV channels over the air in addition to providing broadband IP connectivity. The aerial TV package of about 40 channels is supplemented by on-demand content, such as children's programs, music, sport, and movies, and interactive services that are delivered across the customer's broadband connection via a home gateway, called the BT Home Hub. (See BT Signs More IPTV Deals, BT Adds to Vision Content , BT Adds Sony BMG to Vision, BT Adds Music Video Deal, BT Signs New Content, BT Wins Soccer Deal, and BT Snags DreamWorks Content.)
That approach puts less stress on the carrier's broadband infrastructure and its IPTV service delivery system, which is being supplied by Microsoft Corp. (Nasdaq: MSFT). Once the BT service is up and running, it will be the fourth European IPTV service to launch using the software giant's Internet Protocol Television (IPTV) Edition software platform, following French ISP Club Internet , Deutsche Telekom AG (NYSE: DT), and Swisscom AG (NYSE: SCM). (See Microsoft Wins at BT, Swisscom Finally Launches IPTV, Club Internet Unveils IPTV , and Microsoft Wins IPTV Deal at DT.)
The BT Home Hub is being supplied by Thomson S.A. (NYSE: TMS; Euronext Paris: 18453), while the set-top boxes are coming from Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) , though Light Reading believes the Cisco Systems Inc. (Nasdaq: CSCO) Scientific Atlanta unit is also developing a product for BT Vision. (See BT Gets a Gateway, Thomson Ships BT Home Hub, and BT Picks Philips Set Top Boxes.)
BT already unveiled itself as an online entertainment player with the launch of a movie download service. (See BT Stumbles Into Video World.)
BT won't be the first U.K. service provider with an IPTV offering, as Tiscali UK already has about 50,000 users following its acquisition of British broadband video pioneer Video Networks (Homechoice) in August. (See Tiscali Buys Into IPTV.)
The incumbent's main competitors in the triple-play market, though, are cable giant ntl group ltd. (Nasdaq: NTLI), which is to rename itself Virgin Media in the new year, and Rupert Murdoch's Sky , the Sky satellite TV service provider that is aggressively building out its broadband capabilities. (See NTL Unveils Virgin Media, BSkyB Reports Q1, NTL Rolls Out 4-Service Package, BSkyB Unveils Strategy, and Murdoch's Sky Takes on BT.)
Broadband and revenues
Those players, and others such as Carphone Warehouse Group plc (London: CPW) and Orange UK (formerly Wanadoo), are putting pressure on BT's broadband market share. (See FT Turns Orange and Carphone Faces Broadband Hiccups.)
In the second quarter, BT Retail added 154,000 DSL customers, taking its total to 2.98 million, just less than a third of the U.K.'s 9.3 million DSL lines as of September 30. But that increase means BT's share of the quarter's net DSL additions was just 25 percent, down from 30 percent in the first quarter.
That intense competition in the U.K.'s key retail growth market put pressure on the carrier's share price, which ended the day down 6.75 pence, or 2.3 percent, at 285 pence on the London Stock Exchange . That's still a very healthy 37 percent increase from a year ago, though, when BT's stock was priced at 208 pence.
Overall, BT's second-quarter revenues were £4.94 billion ($9.42 billion), and profit before tax was £629 million ($1.2 billion), or 5.7 pence per share, all of which slightly exceeded analyst expectations.
— Ray Le Maistre, International News Editor, Light Reading
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