A bad day for BT

After missing expectations for third quarter results and suggesting meeting the Huawei cap could cost £500 million, BT investors are being tested today.

With reported revenues of £17.2 billion through the first nine months of the financial year, BT is looking at a 2% deficit to make up. It has been an expensive year to date, though CEO Philip Jansen has tried to put a positive spin on events.

“BT delivered results slightly below our expectations for the third quarter of the year, but we remain on track to meet our outlook for the full year,” said Jansen.

“Underpinning the ongoing development of market-leading propositions, we continue to invest in the best converged network. We welcomed the direction of Ofcom’s recent consultation, which is an important step forward towards a widely shared ambition to invest in fibre across the whole of the UK. We’re also investing in 5G, making it available in over 50 locations, with the first customers enjoying a great experience.”

While the financials do not paint the prettiest of pictures, the last few months have seen a few sparks of good news for the telco.

The 5G rollout is progressing well, having launched in 50 towns and cities. The Ofcom Wholesale Fixed Telecoms Market Review was favourable. The on shoring of BT brand sales and service calls was completed ahead of time. The full fibre rollout has now passed 2.2 million homes. And, the Supply Chain Review has ended.

But while Jansen will want to direct investors towards the beacon of hope on the horizon, the here and now is less attractive. Thanks to regulation, competition and legacy product declines, the financials have taken a hammer blow.

“BT shares, which have been a constant underperformer over the past five years, are down by over 4% in early morning trading on the back of a third quarter trading update,” said Graham Spooner, Investment Research Analyst at The Share Centre.

“Not only have we seen a decline in revenues and adjusted earnings, as a result of the Government’s decision to give Huawei a role in the UK’s 5G network, the group has to increase its range of suppliers in the future. Despite CEO Philip Jansen being ‘really excited about the long-term prospects’, there remain challenges for him to work on in order to make BT ‘bolder, smarter and faster’.”

Looking at the Supply Chain Review, although BT is not neck-deep like Three, it does have some work to do.

While current suppliers are Nokia and Huawei for 4G, BT will have to reassess its options for the continued 5G deployment. If its 4G efforts were to be replicated, BT would certainly exceed the 35% restriction placed on Huawei RAN equipment in the network, though as the decision has been made during the early days of the 5G rollout, it is not disastrous by any means.

BT is already rolling out 5G, with Huawei equipment, and while it does have Huawei in the network core, it has already said it was searching for a new supplier prior to the Supply Chain Review. BT estimates it will cost around £500 million to replace some 4G components to ensure interoperability and get below the 35% restriction on Huawei equipment.

BT investors have had better days, but Rome wasn’t built in a day.