By Paul Sandle
LONDON (Reuters) – Britain’s biggest telecoms provider BT (BT.L) said it is prepared to spend 6 billion pounds on rolling out more super fast fiber and 4G mobile in the next three years, provided the regulator allows it to retain control of its networks.
Regulator Ofcom wants to improve broadband access for British households and has threatened to break up BT, a former monopoly group, if it does not ease its grip on the Openreach network that is used by rivals as well as BT’s own customers.
BT said it was ready to lift its target for super fast broadband to 12 million premises by 2020, including 2 million of the fastest connections, from 10 million after it reported a better-than-expected 6 percent rise in full-year earnings.
However, it said it wanted reassurance from Ofcom about the amount of control it keeps on investment and returns from the network. The regulator is pushing for full structural separation of Openreach.
“We expect we can make a fair return on this investment, so we are calling on Ofcom to give us some confidence that our shareholders are going to make a fair return,” Chief Executive Gavin Patterson said.
The 6 billion pound spending plan also includes improving 4G mobile coverage to more than 95 percent of the country’s geography by 2020.
Analysts at Jefferies said BT actually appeared to be reducing its capital expenditure over the next few years, judging by targets for an increase in cash flow to about 3.6 billion pounds by 2017-18 year and increases in dividends.
“We wonder whether that is a wise signal to be sending to the regulator,” they said.
Around 2.4 million homes in Britain can’t get a minimum 10 megabits-a-second broadband service and only 2 percent of the country has the gold standard of a fiber connection which runs all the way into the premises (FTTP).
BT had shied away from FTTP, saying it could squeeze faster speeds out of its copper connections into homes and premises with its G.fast technology that will reach speeds of 500MbPs in the next few years.
Patterson said new techniques meant FTTP had become more cost effective, and it made sense to deploy the technology in some business parks and new housing developments. “Increasingly it will part of our mix going forward,” he said.
SIGNAL TO REGULATORS
Rival telecom providers who rely on BT’s network have accused BT of not investing enough, particularly in FTTP, and providing a poor quality of service.
They assert that Britain would have better broadband connections if Openreach was spun off.
Ofcom stopped short of recommending that step in a review of the market in February, but it remains locked in talks with BT over the future of Openreach, which also provides the lines used by competitors including Sky (SKYB.L) and TalkTalk (TALK.L).
Sky was not placated by the investment announced on Thursday.
“This limited ambition has been dragged out of BT by the threat of regulatory action, demonstrating once again why an independent Openreach, free to raise its own long-term capital, is the best way for the UK to get the fiber network it needs,” said Sky’s Chief Financial Officer Andrew Griffith.
The investment plan came as BT reported core earnings of 6.58 billion pounds, comfortably ahead of analyst expectations, for the year to end-March.
Revenue was up 6 percent, including a contribution from EE, the mobile operator that become part of BT at the end of January, to 18.91 billion pounds.
Patterson said the integration would deliver costs savings of 400 million pounds a year in the fourth year after completion, up from 360 million pounds a year.
BT established a lead in the race towards convergence – the trend for customers to buy broadband, fixed-line, TV and mobile from a single provider – when it acquired EE.
Its rivals are still in the starting blocks. A merger between two of the remaining three mobile networks, Telefonica’s (TEF.MC) O2 and Hutchison’s Three, is likely to be blocked by Brussels, while talks between cable TV owner Liberty Global (LBTYA.O) and Vodafone (VOD.L) have come to nothing in Britain.
Patterson said the group was performing well in TV and mobile, as well as its strongholds of voice and broadband. Revenue in the consumer division was up 7 percent.
He said confidence its prospects underpinned a 13 percent rise in the dividend, and it forecast at least 10 percent dividend growth in each of the next two years, and free cash flow of 3.1-3.2 billion this financial year and more than 3.6 billion next.
Shares in BT were trading up 3.6 percent at 455.4 pence at 1059 GMT, the top performer in a flat market (.FTSE).
(Editing by Kate Holton and Susan Fenton)
