BT Global is a drag on BT Business, which is dragging BT Group’s revenues down, but BT’s Global Fabric could be huge asset…
As it presented results for H1 to 30 September, BT Group highlighted the drag effect of its international activities on profitably and underlined CEO Allison Kirkby’s (pictured) belief that its future is with “next-gen” networks in its domestic market.
BT’s revenues fell 3% year on year to £10.1 billion (€12.14 billion) which was largely attributed to “difficult trading conditions” in BT Business (the unit that provides services to enterprise customers at home and abroad) ”principally driven by non-UK trading in our Global and Portfolio channels,” according to its earnings press statement.
Divestiture of overseas businesses and assets has been quietly underway since since the fall-out from its Italian accounting scandal eight years ago at what was then BT Global Services. However, BT said at its earnings conference that although the UK is “where we have a strong competitive advantage” and obviously, BT Global does not come under that umbrella.
Last weekend, the Mail on Sunday reported unnamed services close to Kirkby said she is keen to offload BT Global. At the earnings call, BT stated that BT Global, “shows strong commercial opportunity as we roll out Global Fabric, our Network-as-a-Service. We will explore ways to optimise the business and potentially partner to achieve scale.” Which would seem to make sense for a Network-as-a-Service (NaaS) platform.
BT’s Global Fabric has taken years to develop and deploy, and is due to go into commercial use in the New Year. Watch this presentation by its CTO Colin Bannon at Mobile Europe’s Network Now conference or read this interview with Bannon).
Cutting costs rather than raising revenue
Meanwhile, BT’s adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) rose just 1% to £4.1 billion but this was largely to reduced costs rather than increased income. The cost cutting includes the continuing, long-term plan to reduce the workforce: BT made 2,000 people redundant during its fiscal first half year, so its workforce is now 118,000.
BT Group is sticking to its full-year guidance on EBIDTA but expects its full year revenues to fall by between 1% and 2%, again in the main due to Global’s ongoing struggles, plus spending constraints in the public and private sector and “a highly competitive retail environment.
Fibre is the future
In the UK, BT is committed to passing 25 million premises with fibre by the end of 2026. Kirkby stated, “Our nationwide full fibre roll-out has set new records, now reaching more than 16 million premises, and we have further extended our industry-leading take-up rate to 35%. Our cost to build continues to reduce, enabling us to increase this year’s build target to 4.2 million with no additional capex [capital expenditure] spend.
That take-up rate is the key. BT says its semi-detached access arm, Openreach, is making good progress on average revenue per subscriber. Income per connection rose 6% or £16 over the same period last year.
BT is already warning consumers that the Labour Government’s budget which will increase National Insurance (NI) contributions for employers will cost is an extra £100 million per year which will, of course, be passed on to customers.
The other ‘big plus’ pushed at earnings conferences by Kirkby was, “We also expanded our 5G network to cover 80% of the UK population, more than any other operator. These investments in the UK’s next-generation networks are enabling much better experiences, reflected in our improved net promoter scores.”
Investors have had great hopes for Kirkby’s leadership since she took over as CEO in February this year. They were not impressed by the first half results and BT’s share price fell 6.8% to 132.5 pence on the London Stock Exchange on Thursday. True, that is still 6% above where it was at the start of this year but investors have not much to cheer.