Global Insight Perspective | |
Significance | BT posts a 2% rise in revenues for the year ending March 2008 as its Global Services division boosted revenue by 7.9%. |
Implications | Although BT's transformation into an IT-centric business has made it less vulnerable to the challenges facing other European telcos, the company still faces a battle to derive growth from its domestic businesses. |
Outlook | Although the company's 21st Century Network may have been planned as BT's future network infrastructure, its inadequacy and political demands for fibre roll-out across the United Kingdom may force the company to plunge into a nationwide fibre roll-out. |
The United Kingdom's former incumbent telco, BT, has posted a 2% year-on-year (y/y) rise in revenue for the 12 months ending March 2008. BT said revenues rose to £20.7 billion (US$40.3 billion) from £20.2 billion as continued growth in its Global Services division continued to drive growth. The division grew revenues by 7.9% to £7.9 billion thanks to steady contract wins outside the United Kingdom and its MPLS networks. BT Retail maintained a steady performance, although growth is beginning to wane as the U.K.'s overall broadband growth levels off. The division saw full-year growth in revenues of 1.6% to £8.5 billion. BT ended the financial year with 4.4 million broadband customers, cementing its grip as the largest broadband provider in the United Kingdom. Also, the company's flagship IP TV service, BT Vision, cranked up 214,000 customers, firmly establishing it as a player in the United Kingdom’s notoriously competitive pay-TV market. However, BT Wholesale, the division handling its wholesale broadband packages, continued to suffer in the year as a steady growth in local loop unbundling (LLU) and the consequent migration of wholesale customers to LLU hit revenues. Its revenue fell 9.8% in the year to £3.7 billion (see United Kingdom: 7 February 2008: Wholesale Hits BT's Q3 2007).
On a quarterly basis, total group revenues were up 2% y/y for the quarter ending March 2008. BT said its Global Services division had a 10% rise in quarterly revenue, its highest growth in 2 years. BT Retail reported a quarterly growth of 2% while BT Wholesale saw revenues for the quarter fall 15% as the pace of LLU intensified. Group earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 2% for the year and for the quarter, marking the ninth consecutive quarter of sustained growth in EBITDA. Outgoing chief executive, Ben Verwaayen said the results show that BT is in great shape as he leaves. "We have finished the year in style with a strong fourth-quarter performance," he said. "BT is in great shape with year-on-year growth in revenue, earnings per share, EBITDA, free cash flow, and dividends per share."
Outlook and Implications
- Driving U.K. Telecoms Growth: Although BT has moved rapidly to transform itself away from telecoms, the company still managed to rack up important telecoms feats. Indeed, for a service which is essentially free TV with some pay-per-view/video-on-demand capability, BT Vision stood out for signing up 214,000 customers in a market dominated by BSkyB, Virgin Media, and Freeview. Despite this feat, competition is set to intensify further as the country's leading TV broadcasters (BBC and ITV) roll out FreeSat, a service aimed at those unwilling to sign up for monthly TV contracts—exactly the same market that BT Vision appeals to. Besides IP TV, BT has moved swiftly to join in the mobile broadband trend. The company has not rolled out a USB modem/dongle; instead, it opted to provision a BlackBerry-type device offering customers internet connectivity at home via Wi-Fi and connectivity away from home via BT's MVNO service. Overall though, the good news is in the broadband numbers. Despite a feverishly competitive market, BT has managed to maintain its grip as the leading player without resorting to heavy subsidies. So far, the company's pitch as being a "safe pair of hands" in broadband provision seems to be working, helping it to win over 30% of the new broadband adds in the market in the last quarter (see United Kingdom: 7 May 2008: BT Unveils New Mobile Packages).
- Global Services Goes Mainstream: For a unit which was largely experimental less than 10 years ago, BT Global Services’ emergence as a major component of the group's business stands out. Its success has settled the debate about whether telecoms companies can muscle into the IT space without crashing, paving the way for other telcos to follow. Unsurprisingly, much of the speculation about a takeover of BT, especially by Deutsche Telekom, centered on grabbing its Global Services division. As Verwaayen goes, his legacy will be in using the Global Services division to revive a BT which was fatally wounded by its lack of a mobile network, a less-protective regulatory regime, a floundering fixed-line business, and an uncertain broadband future.
- More Effort on Broadband: Although BT has managed to stabilise its grip on the U.K. broadband market, there are still massive challenges for the company. For a start, while its rivals across Europe are busy with fibre-to-the-house (FTTH), BT is still lumbered with its yet-to-be-delivered 21st Century Network (21CN). Unfortunately, the 21CN (which may have cost over £10 billion to build) is already outdated even before it becomes fully operational. BT has attempted to boost its FTTH credentials by promising to roll out fibre in new builds across the United Kingdom. However, unless there is a corresponding commitment to expand that vision to the entire U.K. network, the company will soon face accusations of not doing enough to bring high-speed networks to British customers. Regardless of whether there is a political incentive or not, Global Insight fears that financial expediency is blocking decisions on what would be the defining network format of the future. The incoming chief executive may have to move swiftly to chart a course for the eventual roll-out of fibre across the UK (see United Kingdom: 2 May 2008: BT Rolls Out ADSL2+, 14 January 2008: BT's 21 Century Network Plans Suffer Delay, 10 January 2008: BT Wades into Fibre with Roll-Out of 100-Mbps Fibre Network in U.K. and 26 November 2007: Government Seeks Way Forward for Future UK Broadband Network).