BT on Thursday turned in a solid set of financials for the first quarter of the year, driven by strong performances from its broadband and TV operations, although its Global Services unit remains a challenge.
CEO Gavin Patterson presided over a results presentation that was peppered with subtle and not-so-subtle references to the pressure the telco is under to structurally separate its Openreach access business from the rest of its operations. He also talked up the strong uptake of fibre services the operator is witnessing – so much so that it is required to return a chunk of its BDUK funding – and declared an early success in the consumer mobile market, ahead of its acquisition of EE, which is progressing as planned.
BT’s Consumer business posted a 3% increase in revenue year-on-year in the three months to the end of June to £1.07 billion, "driven by broadband and TV," Patterson said.
ARPU grew by 5% to £419, which "compares very well with our major competitors," he added.
The telco added 85,000 retail broadband customers, which it said represents 57% of the U.K. DSL and fibre broadband market net additions. TV net additions came in at 60,000, increasing the telco’s TV customer base to 1.2 million.
BT recorded 217,000 superfast fibre broadband net retail customer additions in the quarter, taking its total to 3.2 million; 41% of its broadband base is now on fibre.
When BT began its fibre rollout seven years ago its base-case assumption for take-up was 20%. Demand for superfast broadband means it has now reached that poin t and has been able to up its target to 28% across the network and 30% in areas covered by BDUK funding.
BT is required to hand back money it received through BDUK that covers areas where the 20% threshold has been breached. As such, it is returning £129 million that will be made available to local authorities for additional and/or faster rollouts.
Despite the hype around fibre demand, BT is determined not to let us take its investment in the technology for granted.
"The payback remains in double-digit years," group finance director Tony Chanmugam warned.
"We are several years off getting out back from the original investment," Patterson added.
BT insists its £3 billion investment in fibre would not have been possible had Openreach been a fully separated business, something rivals like TalkTalk and Sky are lobbying hard to bring about. Earlier this month Ofcom confirmed that it will consider the possibility of structural separation in its new strategic review.
That review is taking place against a backdrop of "an explosion in competition" in the U.K. broadband market, Patterson said, repeating an earlier call to the regulator to match pay TV regulation with that imposed on broadband.
"Consumers have not been getting good value" in the pay TV space, he said. "Ofcom needs to address Sky’s dominance."
BT has dipped a toe in another highly competitive U.K. market – mobile services – and looks set to become a major player before too long.
BT agreed to pay £12.5 billion for EE in February and the deal is "on track to complete by the end of the year," Patterson said.
Separately, BT launched an MVNO service on EE’s network in late March and is already seeing some success.
"Mobile got off to a very strong start," said Patterson, noting that the service attracted 100,000 customers in the first three months, many of whom were existing BT customers. "It consolidates those overall customer relationships," said John Petter, BT’s consumer head.
The Consumer business accounted for 25% of BT’s turnover in the first quarter and was its main growth driver. At group level revenues fell by 2% to £4.28 billion, but came in flat excluding foreign exchange effects and transit. Group EBITDA rose by 1% to £1.45 billion, while adjusted pretax profit increased by 9% to £694 million. Free cash flow slipped by 13% to £106 million.
The firm’s biggest business unit, Global Services, weighed on the group’s financials. It turned in revenues of £1.54 billion, down by 6%, as an underlying revenue decline of 12% in the U.K. offset growth elsewhere in Europe and in Asia. The U.K. numbers were hit by certain government contracts coming to an end and healthcare projects moving into the service and maintenance phase.
Global Services’ EBITDA slid by 11% to £190 million, which was "a little disappointing," Patterson said. However, the result "doesn’t reflect what we believe will happen over the year as a whole," he insisted, noting that the unit is rationalising its organisational structure and optimising its cost base in the U.K. He also pointed to the opportunities coming from new services, highlighting cyber security in particular, and referenced new contracts signed with the likes of Debenhams and Zurich Insurance.
"We will be able to deliver growth in this business going forward," Patterson said.
At group level BT has identified £1 billion worth of cost-saving opportunities, many of which are linked to Global Services. It has earmarked £20 million in annualised cost savings linked to new network projects at Global Services and £70 million at Global S ervices’ contact centres.
BT is "on track to meet our full-year outlook," said Chanmugam. That is, underlying revenue growth, modest EBITDA growth, and free cash flow of around £2.8 billion.
