BT can’t seem to catch a break at the moment. After losing out to Vodafone for Virgin Media’s 5G service last month, the communications giant finds itself facing further challenges from multiple sides, with the BT share price still well below it's pre-pandemic levels.
A tough market in broadband and mobile continues to hit margins in BT’s consumer division, while its enterprise and global divisions are having to cope with rapidly changing business environments, as fixed phone lines are used less and less.
Openreach offers silver lining for BT share price
BT’s Openreach subsidiary may prove to be a bright spot. The broadband division has the chance to benefit from the rollout of the faster, more reliable connections the UK needs. The country still lags behind many in terms of fibre connectivity, with only 18% of households having access to the fastest broadband, and Openreach have hired 5,000 new engineers to help accelerate the installation of fibre across the country.
Demand is higher than ever for high-speed internet, and Boris Johnson made full-fibre access for everyone by 2025 part of his 2019 election manifesto, a pledge that has been downgraded to 85% since.
The benefit to the BT share price from this expansion will only be felt if Openreach is kept under the BT umbrella. Last May there was some chatter that BT was looking at selling off a multibillion-pound stake in its broadband arm, and in November, BT chief executive Philip Jansen suggested that he was "open-minded" regarding the sale of a stake in Openreach. However, this would only be considered following an Ofcom review this year.
Fibre rollout helps BT boost its profit guidance
Selling a stake could help BT accelerate the build of its fibre-to-the-premises (FTTP) network, with a target of 20m homes by the mid-to-late 2020s, and a target of over 2m in 2020/2021. In Q2, the company said the rollout of its ultra-fast broadband hit record levels of 40,000 households per week. Over the last year the company said it had doubled the number of FTTP orders, while expanding its 5G network across 112 towns and cities across the UK.
This outperformance prompted BT management to up their profit guidance for the full-year from £7.3bn to £7.5bn, while also saying that they expected to restore the dividend of 7.7p a share in the next fiscal year. Investors will be looking to see whether this confidence translates to movement in the BT share price.
Challenges at home and abroad for BT
The upcoming Q3 update is set to be a key arbiter of how its various businesses are doing, and how they will cope with the increasing challenge of competing with the newly-merged Telefonica and Liberty Global. The deal is set to be waved through this year, and will combine Virgin Media, the UK’s fastest broadband network with O2, the UK’s largest mobile provider. This will ignite the competition in the quad-play space, as rivals vie to bring consumers home phone, broadband, TV and mobile contracts in a single package.
BT also still faces a legal challenge in Italy, with the start of the trial into the false accounting that was uncovered at its Italian business, where management and staff are accused of attempting to conceal more than €280m of losses and inflating revenues between 2013 and 2016. While BT has finally offloaded some of the offending business to Telecom Italia, the company could still face fines if the defendants are found guilty.
BT will reveal its Q3 results on Thursday 4 February at 7am. What will the latest numbers mean for the BT share price?