With today’s flurry of announcements, however, there is a sense that the heavily indebted telecoms giant might be about to turn a corner.
Let me count the ways.
A sale of a stake in Openreach looks more likely
Openreach, the network arm of BT, has long been regarded as the jewel in the BT crown.
Chief executive Philip Jansen said back in November of last year he was “open-minded” about a potential sale in the group’s broadband business, whereas if reports are to be believed, soon to be ex-chairman, Jan du Plessis was less keen.
The fact du Plessis announced his intention to retire once a successor has been found suggests Jansen won that battle (if indeed it was a battle).
Today’s announcement that BT will explore “joint venture structures” over the first half of the current financial year to help fund an increase in the number of planned fibre to the premises (FTTP) connections by December 2026 indicates BT has accepted that with all of its other commitments, it cannot afford to go it alone.
While BT effectively bankrolls Openreach, the division is strictly independent with its own board and is also heavily regulated.
Jansen made it clear that the decision to seek joint venture partners applies only to the extra 5mln FTTP connections it announced this morning it is targeting but this could be seen as testing the water for a sale of a minority share in Openreach.
US investment bank JPMorgan has put a value of GBP22bn for Openreach; on that basis, a sale of, say, a 25% stake would raise more than GBP5bn, which would come in very handy for a company with an GBP8bn pension deficit.
Investment in infrastructure assets is a hot topic and private equity groups are likely to be gagging for a chance to invest in Britain’s high-speed network.
The pension millstone could be jettisoned by 2030
BT intends to whittle away GBP2bn of the deficit through an asset-backed funding arrangement over 13 years with annual cash payments of GBP180mln a year, secured against its EE business.
The balance will be met over the existing 10-year period with annual cash contributions reducing from GBP900mln initially down to GBP600mln from 1 July 2024.
Ever since the company was privatised, the pension commitment has been a drag on the share price, especially for a company that has a hefty capital expenditure programme.
An attachment to maintaining the costly dividend added to its problems, but management had the sense to suspend dividends for a couple of years back in May 2020. That was under the guise of dealing with the potential consequences of the coronavirus (COVID-19) pandemic but that may have been just window-dressing.
In the 12 month period to the end of September 2019, BT paid out dividends worth 15.4p; payments are expected to resume at an annual rate of 7.7p per share in 2021/22, which at today’s share price of 160p is still a generous yield of around 4.8%.
The path ahead is clearer than it has been for some time
“A number of uncertainties have now been removed,” CEO Philip Jansen observed in this morning’s results statement.
“The Wholesale Fixed Telecoms Market Review, 5G spectrum auction and the Government’s tax super-deduction give us the green light to build the UK’s next-generation digital infrastructure even faster,” he said.
The telecoms market review gave BT some clarity on how much money it would be allowed to make from extending Britain’s digital network via FTTP.
The company is never going to extend the network fast enough for most people and there is probably some merit in the suggestion that BT has wanted to milk its copper-network cash cow for as long as possible but with smaller operators looking to cherry-pick the most profitable locations, BT’s obligation to serve the whole country has always put it at a disadvantage.
Today’s announcement that it is picking up the pace of FTTP connections indicates the company has a plan to head off those smaller cherry-picking competitors.
Shame about the football
In April, BT confirmed it is in early-stage talks with potential investors in its sports broadcasting business as it seeks to focus on its core broadband and telecoms businesses.
In the meantime, and as announced today, BT has stumped up an unspecified amount to roll over its broadcast deal with the Premier League for three years.
The Premier League has similarly extended all its UK rights with Sky and Amazon Prime retaining the packages they picked up in a prior deal worth GBP5bn for three years, from 2019 to 2022.
As Proactive’s Jamie Ashcroft observed, on the surface the decision to roll over the existing broadcast deal would appear innocuous enough, though there are a couple of key points to note.
First, the price of football broadcasting normally goes up whenever the league auctions off the rights but instead the league has opted against testing the market.
It says something about the sentiments in the game presently but in time could perhaps be seen as a missed opportunity, assuming the often-speculated interest of streaming companies is indeed loitering on the outside looking for a way in.
Secondly, it is not actually the same deal that the broadcaster previously bought.
Between Sky, BT and Amazon Prime every Premier League fixture is now broadcast live in the UK amidst the pandemic and games behind closed doors – there’s an awful lot more coverage and content.
The extension also comes with a pledge of a GBP100mln package of ‘solidarity payments’ to the lower tiers of the English football pyramid.
In practice, BT had to renew this package as it could hardly have hoped to have sold off BT Sport with the world marbles championship as its centrepiece attraction.
However, the market appears not to like the development, with the shares down 4.8% at 161p.
As ever with BT, it appears to be one step forwards, two steps back.