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Revenues are down, but BT looks ready to do battle

Total revenues and profits might have slipped slightly at BT, though it met expectations and it seems the business is lining-up its pieces for an assault on the UK market.

With the assets the telco has at its disposal, BT should dominate the market leaving the scraps for rivals to fight over, but this has not been the case. There have been some lavish spending sprees over the last few years, though the refreshed management is taking a more network-orientated approach as opposed to the ‘bells and whistles’ of the previous regime.

“BT delivered results in line with our expectations for the second quarter and first half of the year, and we remain on track to meet our outlook for the full year,” said CEO Philip Jansen.

“We’ve invested to strengthen our competitive position. We’ve accelerated our 5G and FTTP rollouts, introduced an enhanced range of product and service initiatives for both consumer and business segments, and announced price and technology commitments to deliver fair, predictable and competitive pricing for customers.”

Capital expenditure for the first six months of 2019 was £1.88 billion, up £225 million year-on-year, although this excludes the grants from the Broadband Delivery UK (BDUK) programme. Such increase should come as little surprise as the team has been enthusiastically shouting about 5G launches across the UK (now up to 20) as well as new homes which are being passed with fibre (23,000 per week) in pursuit of the Government’s lofty full-fibre goals.

In years gone, BT looked like a telco which was defined by its challenge to Sky in the content market, while few could recognise the synergies with EE. The BT of today looks very different, thrusting the connectivity assets to the centre of the business. With the convergence business model proving its worth in various European markets, see success at Orange for evidence, BT is taking inspiration.

With the fixed network in the UK, which is being aggressively fibred-up, 30 million mobile subscribers, five million wifi hotspots and a new TV proposition to be launched at some undefined point, the cross-selling opportunities are abundant should BT be able to nail the experience on the assets. This seems to be the focus of investments under Jansen, instead of going for the glamorous, the team is concentrating on delivering the core connectivity experience and then bundling on additional added-value options.

Across the business, the Average Revenue per Consumer (ARPC) for broadband remained relatively flat at £38.5 per month, while postpaid mobile decreased to £20.8, down 5.5% though as this has been attributed to new regulation and the SIM-only trends it is nothing too be too concerned about. Interestingly enough, the number of Revenue Generating Units (RGUs) per household has increased to 2.38. This is where the convergence strategy could make a very positive impact.

As a business model, convergence is more efficient and creates higher customer loyalty and NPS. Bundled at a suitable price-point, and it looks like a very attractive offer to steal subscriptions from rivals also. However, experience does have to be very high across the entire portfolio, hence the increased spend on the network over recent months.

This is where BT could be a very interesting business over the next couple of months. The ‘Halo’ converged products could attract interest, especially when the hotspots are bundled in also. Rivals might be able to compete with BT with a few bundles, but no-one can offer the same breadth across mobile, broadband, wifi and content. This is a massive advantage, and BT should be shouting and screaming.

We might have to wait a couple of months before the refreshed TV proposition is fully polished, but this is another reason why no-one should worry too much about the slipping revenues for H1. BT is still lining up the various pieces before an aggressive push with the full convergence offer. It has been suggested the TV proposition will not be ready until the new year.

With its assets, BT should be untouchable. It still has work to do on the fibre rollout, 5G deployment, finalising the TV offer, improving the wifi experience and aligning the BT and EE brands, but the ‘Halo’ converged offer could create some serious noise.

2019 First Half Financials
Total Revenue £11.467 billion (1%)
Profit before tax £1.333 billion n/m
Profit after tax £1.068 billion n/m
Basic earnings per share 10.8p 2%
Capital expenditure £1.882 billion 3%
Business units
Consumer £5.194 billion (1%)
Enterprise £3.055 billion (5%)
Global Services £2.196 billion (6%)
Openreach £2.356 billion n/m

n/m = not-meaningful

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