EUR 850.00 For Business Accounts Only

Morningstar | BT Announces Philip Jansen Will Take Over as CEO in 2019

With the closing of its acquisition of EE, BT becomes the only truly convergent telecom operator in the United Kingdom with the ability to offer fixed-line and wireless telephony, broadband, and pay TV on its own network. The U.K. has trailed several other European countries in moving to converged services, but we think this acquisition will help jump-start that move. BT should benefit, as it controls the whole network, while others will need to wholesale at least some services from somewhere else. BT's best-performing division has been its consumer sector, and the addition of EE should help this business even further. The firm's investment in fibre should provide growth in the Openreach division. Fibre is now available to over 25 million premises in the U.K., and BT has 4.1 million retail subscribers and 1.8 million wholesale customers. The firm has also won 44 regional bids in the Broadband Delivery U.K. project. While this should provide some revenue growth, we project that it will be at lower margins than the Openreach division's other revenue.We are not as enthusiastic regarding BT's other venture of taking on Sky in television by launching its own sports channels. The firm has spent or has contract commitments to spend about GBP 2 billion ($2.5 billion) on content and launch costs. While the business won the exclusive rights to the UEFA Champions League and UEFA Europa League and now has more than 3 million direct customers (5 million including wholesale), Sky continues to add broadband customers. We are pleased that the firm is beginning to charge its lower-tier broadband customers for access to its sports channels. We think BT needs to charge in order to have any hope of earning a decent return on the capital it has invested.Elsewhere, BT's global services division and the U.K. public sector are struggling, negating growth in the retail division, but in the longer term, we expect the global services division to return to revenue growth. However, the U.K. public sector and an accounting scandal in Italy are also pressuring margins. Additionally, the firm's low interest rates are increasing its pension deficit.