October 29, 2015
BT CEO Gavin Patterson has told investors the operator is already exploring the possibility of providing sports content to EE mobile customers after BT completes its £12.5 billion (US$19.1 billion) takeover early next year.
The UK's fixed-line incumbent yesterday secured provisional approval of its takeover from the country's Competition and Markets Authority (CMA) and expects to have acquired EE by the end of March. (See Eurobites: BT-EE Deal Clears Another Hurdle and BT Locks Down £12.5B EE Takeover Deal.)
"The revenue synergies will come from bundling services but also from creating new converged services," he told analysts earlier today during a presentation of BT Group plc (NYSE: BT; London: BTA)'s July-to-September (second quarter) results. "There is an opportunity to provide sports services to EE customers that could be especially interesting."
BT has been spending heavily on sports rights to attract new TV customers and it claimed to have outperformed pay-TV market leader Sky on subscriber growth in the second quarter, adding 106,000 new customers to Sky's 43,000. (See BT, Sky Splash £5.1B on Premier League Rights.)
Patterson attributed the strong performance to the launch of its new BT Sport Europe channel. "It was our best-ever performance in terms of TV net adds," he said. "BT Sport Europe is ahead of expectations and 75% of customers are now paying in some way for BT Sport, compared with about 40% before the launch."
With 1.3 million TV customers in total, BT is still much smaller than Sky, which does not break out details of subscribers to specific services but has around 11 million customers in the UK.
BT would be able to close this gap, to some extent, by offering its sports content to EE's own TV customers as well as users of the mobile operator's 4G service.
Interestingly, Patteron's remarks came in the same week that EE boss Olaf Swantee highlighted the opportunity to provide "seamless access" to a variety of fixed and mobile technologies following the tie-up with BT. (See EE Confirms 1Gbit/s 4G Trials in 2016.)
"Our ambition is to create a defect-free network in years to come where customers will have seamless access to 2G, 3G, 4G and WiFi technologies without switching devices depending on their circumstances," Swantee told reporters during a press briefing in London. "The project with BT is very important from a technical perspective."
Amid criticism from rivals about its growing dominance in the UK's communications sector, BT reported sales and earnings that were largely the same as in the year-earlier quarter.
A strong sales performance at the consumer division combined with growth at the Openreach access networks business was offset by shrinkage elsewhere, while investments in the TV business weighed heavily on EBITDA.
Adjusted revenues came in at about £4.4 billion ($6.7 billion), the same as in the second quarter of 2014, while adjusted EBITDA fell by 1%, over the same period, to around £1.4 billion ($2.1 billion).
Thanks to a reduction in net finance expenses, adjusted profit before tax rose by 2%, to £706 million ($1.08 billion).
Analysts have expressed concern about the impact on profitability of BT's investments in sports and other TV rights, and the operator blamed an 11% rise in operating costs at the consumer division on the launch of BT Sport Europe as well as a content deal with AMC Corp. , a US cable and satellite TV channel.
Responding to questions from analysts during BT's earnings presentation, John Petter, the CEO of the consumer business, acknowledged that it would be difficult to maintain the rate of TV subscriber growth in future.
"This was a particularly strong quarter and I wouldn't expect us to replicate that every quarter," he said. "In terms of our strategy we will be disciplined in terms of the investments we make for top- and bottom-line growth."
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Besides boasting customer gains at the TV business, BT also claimed to have outperformed broadband rivals that use the Openreach network to provide services, signing up 82,000 customers over the July-to-September period and boosting the number on fiber-based services by 212,000.
The broadband additions represent about 51% of growth in the market for Openreach services, said BT, and 3.4 million customers are now using the operator's fiber-based products -- or about 44% of the broadband total.
BT also now serves about 200,000 mobile customers, having launched its own mobile service in March in advance of its takeover of EE.
Openreach said the fiber-based network was available to around 24 million premises at the end of September and that 5 million of these were connected to services, meaning that BT's retail business accounts for about a quarter of all Openreach fiber connections.
Patterson also told analysts that BT has yet to see much impact from a £3 billion ($4.6 billion) network expansion program announced earlier this year by cable rival Virgin Media Inc. (Nasdaq: VMED). (See Virgin Media Plots £3B Invasion of BT Turf.)
"There has been minimal impact to date -- clearly we are anticipating where they are going and making sure we are proactively working with customers to minimize the impact there but it is early days," he said.
Virgin Media aims to extend its cable network to another 4 million UK premises by 2020 and offers much higher-speed products than BT, trumpeting a premium deal of 200 Mbit/s next to the 76Mbit/s service that is BT's fastest.
BT, however, reckons it can boost connection speeds to between 300Mbit/s and 500Mbit/s by investing in a technology called G.fast, which supercharges the last-mile copper connection. (See Long-Range, High-Speed Gfast Is Coming – BT.)
Following the completion of trials, the operator plans to roll out G.fast to 10 million UK premises by 2020 and Patterson believes the investment case for the new technology is improving all the time.
"What has changed is a dramatic increase in the capabilities of the technology -- we used to think it had to be deployed at telegraph poles, which would take a lifetime, but we are now getting performance at cabinet level," he said. "The vendors are really stepping up because they see it will be important for other service providers as well and the economics have become more attractive in last three months alone."
While bullish on broadband, BT expressed disappointment with the performance of the large global services outfit, with revenues falling by 5%, to around £1.6 billion ($2.4 billion), and operating profits dropping by 16%, to just £86 million ($131 million).
BT held unfavorable currency movements and a decline in transit revenues largely responsible for the setback, while noting an 8% drop in UK sales due to pressure in the public-sector business.
BT's share price was trading up just 0.4% at 11 a.m. in London on Thursday morning after rising by 3.7% on Wednesday following the CMA's approval of its EE takeover.
— Iain Morris, , News Editor, Light Reading
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