BT’s dodgy Italian accountants cost another £225mn

It certainly has been a busy quarter for BT. It’s secured the Champions League TV rights, forked out a large chunk of change to Orange and Deutsche Telekom and finally merged EE and the BT consumer unit.

Firstly, the pay out, as this looks to be painful little burn. £225 million is a hefty amount to hand over to the two telco shareholders, another fallout incident from the accounting scandal. Following the £12.5 billion acquisition of EE in 2015, Orange and DT became shareholders in the British operator to offset a bit of cash. The pair were clever enough however to have a warranty as a protection against a slump in BT’s performance issued as part of the deal, which has clearly eaten heavily into BT profits this quarter. A 42% bite to be more specific.

It’s a bad smell which CEO Gavin Hasselhoff Patterson can’t seem to shake. Our Gav has already had last years’ salary slashed by £4 million, as well as having to lay off 4,000 jobs as part of a restructure, but this is another headache. The team has reportedly tried to figure out a way to jettison the troublesome Italian business, and this latest development might provide a bit more incentive.

Overall, it certainly wouldn’t have been welcome news, but it could have been worse for the telco. Revenues across the quarter did grow marginally to £5.8 billion, but profits took a bit of a nose-dive. BT still make £418 million, but this represents a 42% dip compared to the same quarter in 2016. It doesn’t seem to have worried too many investors however; at the time of writing, share price across Friday morning was up 1%, but still down 14% compared to levels prior to the scandal.

On a more positive note, the team has announced that it will merge the EE and BT consumer units, with current EE CEO Marc Allera taking the helm of the new business.

“This appointment reflects the growing scale and ambition of BT. Marc has led the successful integration and delivered the improved customer experience and strong financial performance of EE,” said Patterson. “He will lead our continued integration and convergence in consumer telecommunications.”

On the mobile side of things, there were certainly some positive numbers to report. 210,000 postpaid subscribers were added to the ranks over the quarter, with prepaid declining by 385,000. The total mobile base now stands at 29.8 million, 17 million of those postpaid, while 19 million were on some sort of 4G deal. ARPU stood at £26.6 for postpaid customers, up 2% year-on-year. These are hardly earth-shattering numbers, but alright.

On the broadband side of things, BT now claims to have 53% share of the retail market. Retail fibre broadband additions increased by 170,000 taking the total fibre customer base to 5.1 million, out of a total of 20.4 million.

Over in TV land, there was 8,000 net additions across the quarter to take the total to 1.8 million. BT Sport’s average audience figures increased 9%, which may increase over the next couple of quarters owing to the expensive Champions League TV rights. The team had to fork out £1.18 billion, 32% more than the previous deal, to fight off competition from Sky, so let’s hope there is some return here, otherwise it is an expensive mistake to make.

In terms of cash, this certainly makes for better reading. The BT consumer business unit grew by 7% to £1.255 billion, while EE saw a year-on-year boost of 4% to £1.291 billion. A combination of these two business units, along with the expected cost-saving benefits, could make this quite a handy little profit-maker for Gav and his buddies on the board.

One other appointment which might be worth noting is that of Cathryn Ross who will become the new Director of Regulatory Affairs. Ross will lead the relationship with Ofcom, which is likely to becoming strained after the latest legal bout. Perhaps the most interesting aspect of this bit of news is Ross’ experience to date.

Ross will be joining BT from water regulator Ofwat, where she currently serves as CEO. The trend of telcos becoming increasing utilitised is one which every has noticed, but the telcos have continuously tried to avoid. Almost everything has been done to avoid being regulating to the role of commodity, but perhaps this is an indication BT is actually accepting the role.

You’ll struggle to find an area which is more utilitised that water. If BT is accepting its role as a utility, appointing someone like Ross would certainly be a sensible move considering her experience. This is of course a theory from, but who doesn’t like a bit of speculation.

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