UK ISP BT Grows to 9.12M Broadband Subs, with 4.26M on Superfast Fibre

BT has published their latest quarterly results (calendar Q2 2016), which saw their total base of retail broadband customers top 9,117,000 (up by +76K in Q2 vs 1.045m in Q1) and 4,257,000 of those make use of their FTTC/P based Infinity superfast broadband service (up by +181K vs +214k in Q1).

Once again the BT Group have had a busy quarter, starting with their retail ISP division (BT Consumer) that has launched a new ‘up to’ 52Mbps FTTC (BTInfinity) service (here) and introduced the new Smart Hub (HomeHub 6) router (here). Not to mention the on-going work of integrating EE into their business.

Elsewhere Openreach, which is responsible for maintaining and upgrading BT’s national UK telecoms and broadband network, has been busy expanding the availability of their ultrafast Fibre-to-the-Premises (FTTP) technology and preparing for the commercial roll-out of 300Mbps G.fast (here and here).

Key Highlights from Today’s Report (Quarterly)
* BT Groups’ quarterly revenue hit £5,775m (up from £5,656m in Q1 2016)
* BT Group’s reported profits before tax hit £717m (down from £893m)
* BT Group’s total net debt reached £9,579m (down from £9,845m)
* BT Wholesale’s quarterly operating profit hit £123m (up from £91m)
* Openreach’s quarterly operating profit hit £300m (down from £382m)
* Openreach’s quarterly capital expenditure hit £337m (down from £376m)

Now let’s take a closer look at the wider figures.

BT Consumer / Retail

BT’s consumer division is the largest broadband ISP in the UK and as such they also tend to grab the lion’s share of new “fibre broadband” (FTTC/P) subscribers (we split this out below), which takes away from the overall total on Openreach’s wider network (we’ll show this later on).

We should point out that the quarterly change in home broadband subscribers was abnormally larger in Q1 (+1.045m) due to the merger with EE, thus it’s perhaps better to compared with the Q4 2015 figure when +130,000 new customers were added. In keeping with that Q2 may have suffered due to Brexit distractions and students returning home for the summer (BT often do special 9 month contracts for students).

In terms of mobile subscriptions, BT + EE actually added +12,000 new customers, but this has to be weighted against the fact that they removed 189,000 “inactive customers” in the quarter and that’s why the growth has suffered such a sharp fall this quarter.

Openreach & Wholesale

The results from Openreach are more useful because they allow us to see wider market trends, at least in respect of BT’s national UK telecoms network and those independent ISPs that buy services over it (e.g. the total broadband and fibre lines below include those from BT Consumer, as well as many other ISPs that buy their lines from Openreach, all combined).

Note: Unbundled (LLU) lines are mostly used by ISPs that have installed some of their own kit inside Openreach’s network in order to gain more control over their own products and services, which is something that providers like TalkTalk and Sky Broadband have invested a lot of money into (MPF lines are more popular because they afford ISPs the most control).

Separately, BTWholesale continues to operate a total of 885,000 external broadband lines for other ISPs, which has fallen by -2,000 in Q2 2016 after showing a drop of -8,000 in Q1. However it is noted that BT recently conducted a review of their Wholesale and Openreach base, which resulted in a 19,000 adjustment, thus the figures for this quarter are a little out of sync with previous trends.

Otherwise the most interesting figure to take away from Openreach’s summary is the quarterly increase of +333,000 in new “fibre broadband” (FTTC/P) lines, which of course includes the +181,000 added by BT’s Consumer division. In other words, BT’s retail rivals (e.g. Sky, TalkTalk, Zen Internet, AAISP etc.) accounted for just +152,000 of the total quarterly increase (down from +201,000 in the previous quarter).

Gavin Patterson, CEO of BT Group, said:

“We’ve made a good start to the year, with growth in revenue and strong cash flow. We’re on track to deliver our full year outlook.

Our integration of EE is progressing well, alongside our business reorganisation that took effect on 1 April. EE performed strongly, both financially and commercially, and our customers are seeing the initial benefits of our acquisition with BT Sport now available to EE pay monthly customers. We remain focused on improving customer experience and 100% of EE pay monthly calls are now handled in UK and Ireland contact centres. We’ve reduced engineer missed appointments by more than a third since last quarter and Openreach is again ahead on all 60 minimum service levels set by Ofcom.

Fibre broadband is available to well over 25m premises and take-up remains strong. At a retail level, we performed well achieving a 79% share of broadband net adds in the quarter. We were pleased to renew our FA Cup rights during the quarter and we look forward to showing more games from the Premier League at a much better time slot, starting in two weeks. Our customers can also look forward to all the exclusive live action from the UEFA Champions League and UEFA Europa League once again this year.

Our investment plans remain central to our future and so we will be rolling out further fibre in the coming months, as well as 4G through the Emergency Services Network contract. Our aim is to make these services as universally available as we can, whilst also deploying a new generation of ultrafast broadband. Such investment requires regulatory clarity, particularly in these uncertain times.

Having listened to Ofcom and industry, we have set out our proposals for greater independence and transparency for Openreach. Our proposals can form the basis for a fair, proportionate and sustainable regulatory settlement and we believe they can also enable Ofcom to bring its Digital Communications Review to a speedier conclusion. We will continue to engage with Ofcom over the coming months.”

The main challenge for BT now is with how best to meet the many expectations of Ofcom’s Strategic Review, which is still threatening to split Openreach from the operator’s control unless they voluntarily agree to some big changes and make their national network more accessible to rivals.

Most of the regulator’s expectations aren’t likely to cause too much pain, but the main sticking point is one of governance. In particular Ofcom wants Openreach to become a “legally separate company” and for it to be able to have confidential discussions with its customers without oversight by BT, but the operator opposes those requirements (here).

In keeping with all this the Government’s new Digital Economy Bill is quietly working to make it even harder for companies to challenge regulatory decisions and the vote to leave the EU may well remove another legal option for BT.

On the other hand splitting BT would be complicated (e.g. legal challenges, pensions etc.) and may not be the magic bullet that some seem to expect, particularly in regards to boosting general service quality and the question of improving connectivity for the most difficult to reach / digitally disadvantaged rural and urban areas.

However it could perhaps resolve the question of Openreach’s fairness and might result in more investment going towards FTTP/H services, albeit still predominantly more of a benefit for the low hanging fruit of cities and towns. Ofcom should publish a final statement by the end of this year, which will reveal whether or not Openreach is to remain under BT’s control.