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FOR BT (BT.A), the telecoms giant that used to have a monopoly on the UK’s phone lines, the changing times are proving challenging, there’s no doubt about that. Increasing competition in the race to dominate Britain’s broadband and 5G services, has been a thorn in its side for a while now, with newcomers constantly nipping at its heels, taking chunks out of its market share and eating into its profits.

The newly-merged Virgin Media O2 is a direct challenge to BT. As if that wasn’t evident enough, its chief executive, Lutz Schüler, has openly warned BT that it “had better watch out”.

And it’s not alone. When Liberty Global and Telefónica agreed their merger in 2020, the aim was to create a stronger mobile and broadband competitor to BT in the UK. And then there are the dozens of private capital-backed “altnets”, all racing to take a dominant share in the country-wide rollout of faster, full-fibre networks.

This fast and furious competition is costing BT serious money, with billions of pounds being poured into fibre and 5G. According to analysts at Goldman Sachs, BT is building at almost four times the speed of competitors and at around two-thirds of the price of its competitors. But the battle is far from over.

BT has set aside another £15 billion to expand its fibre network, with the plan to have it installed in 25 million homes by 2026. Openreach, its infrastructure subsidiary, has now reached a total of 7.2 million premises, including 3 million in the fourth quarter of the year. However, Virgin Media O2 has similar plans and a potential joint venture with Telefónica and Liberty Global up its sleeve, with the aim of providing connectivity to an additional 7 million homes by the end of 2027.

But BT has big plans of its own. It’s already sold Sky to Comcast, taken TalkTalk private and installed thrusting new CEOs at Vodafone and Three. News that it has finalised its much-anticipated deal with US media group Warner Bros Discovery to form a joint venture for its sport business should cement its place in the sports media sphere. This king of the jungle isn’t going down without a fight.

Its latest set of full-year results showed that revenue came in at £20.9 billion; 2% lower than the same quarter last year, and below consensus estimates of £21.4 billion. BT put that down to, in part, a decline in growth in its enterprise business. Earnings before interest, tax, depreciation and amortisation rose by 2% to £7.6 billion in 2021, slightly above analyst expectations, in part due to cost management. The company said it would pay a full-year dividend of 7.7p per share.

The next stage of its plan is to rebrand BT. It will make the EE brand its flagship brand for consumers and says it will share more about its launch plans later this year. The BT brand will still appear on its standalone broadband and landline services, while BT Sport will continue to broadcast sport, as part of a joint venture with Warner Bros. And Plusnet, its ‘value brand’, will continue to serve customers with basic no-frills broadband and landline.

And there is, of course, also a cost-of-living crisis to contend with. Although analysts seem to think an inflationary environment is not something that should trouble BT too much. Back in February, broker Berenberg increased its price target from 200p to 225p. Analysts there say the price target increase is largely on the back of the fact that around two-thirds of BT’s revenue is linked with inflation. It also expects normalised free cash flow to grow by 23% between now and 2023.

JP Morgan also thinks BT is well-equipped to deal with the current economic climate. It may increase its price target in July.

More on BT

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