BT Nears 8 Million Broadband Subs and Touts EE Mobile Fuelled Future

BT has today released its latest Q4 2015 results (calendar) and confirmed that their retail division has a total of 7,996,000 broadband subscribers (up by +130K vs +82K in Q3), with 3,689,000 of those on their superfast BTInfinity (FTTC) service (up by +250K in Q4 vs +212K in Q3). The operator has also revealed some more details about their post EE merger plans.

At present BT’s UK focused business is split into several divisions, one that serves end-users with retail products (BT Consumer + Business), another that manages the underlying UK telecoms network and sells related services to ISPs on a “functionally separate” basis (Openreach) and a third that sells BT’s own twist on their products to other ISPs (BT Wholesale).

However BT has today announced that from April 2016 it will create a new consumer focused division to encompass their newly merged mobile business called.. *drum roll*.. EE (BT EE sounds quirky), which as expected will retain the old brand name and high-street stores under the control of CEO Marc Allera.

Elsewhere BT Business becomes ‘Business and Public Sector‘, which will also include EE’s business focused mobile solutions and those parts of BT Global Services that are UK focused. Finally, BTWholesale will now add in EE’s MVNO business to become ‘Wholesale and Ventures‘.

Consumer Growth

In terms of retail growth, BT’s Consumer division continues to be the largest broadband ISP in the United Kingdom (Sky Broadband comes 2nd with 5.89m subscribers) and they also tend to grab the lion’s share of new “fibre broadband” (FTTC) subscribers too (more details below).

On top of that BT Consumer also added +97,000 Pay TV (YouView) customers in Q4 (down from +106k in Q3, albeit largely due to 7K inactive accounts being removed), which gives them a total of 1.397 million. Plus the operator now has more than 300,000 BTMobile subscribers, although this will sky-rocket once EE’s 13 million 3G and 4G customers have been merged into the fold.

Openreach & Wholesale

The results for Openreach are arguably more useful as they allow us to see wider trends in the market. Overall Openreach are supplying a total of 19,797,000 active UK broadband lines (up by +182k in Q4 vs +160k in Q3), which includes 8,874,000 fully unbundled (MPF LLU) and 1,073,000 shared unbundled (SMPF LLU) lines as used by other ISPs (e.g. Sky Broadband and TalkTalk); MPF lines are more popular because they give ISPs extra control and independence.

Openreach also reported that the market was now home to some 5,492,000 “fibre broadband” subscribers, with the vast majority of those connecting via their ‘up to’ 40-80Mbps capable Fibre-to-the-Cabinet (FTTC / VDSL) service and a tiny portion on ultrafast FTTP. This represents an increase of +494k in the quarter, which is up strongly from the +415k added in Q3. Openreach’s FTTC/P network is currently available to well over 24 million premises (+80% of the UK).

Clearly BTInfinity is still taking the main share of new “fibre” additions, given that BT Consumer alone accounted for +250k of the +494k added in Q4, but rival ISPs are grabbing an increasingly big chunk.

Separately BTWholesale continues to operate a total of 1,853,000 external broadband lines for other ISPs, which has fallen by just -6k in Q4 after showing a small increase of +5k in Q3.

Gavin Patterson, CEO of BT Group, said:

“This is a strong set of results with good numbers across the board. Revenue was up 4.7% this quarter, our best result for more than seven years. We are making good progress towards our goal of sustainable profitable revenue growth.

BT Consumer had a standout quarter, increasing its overall line base for the first time in well over a decade and capturing 71% of new broadband customers. Good customer growth in broadband, TV and mobile helped to grow ARPU by 7%.

These are exciting times at BT. We have completed our acquisition of EE, the UK’s best mobile network provider, and are confident that we’ll deliver the anticipated cost and revenue synergies. EE will become a separate consumer-focused line of business within the group. We’re also creating a new organisation to better serve our business and public sector customers in the UK, combining BT Business with EE’s business division and parts of BT Global Services’ UK operations. BT Global Services will focus on serving multinational companies and major customers outside the UK.

Service continues to be a priority. Our engineers have worked tirelessly over the festive period to restore service after some of the worst flooding on record. We’re investing to improve service and are creating a further 1,000 contact centre jobs in the UK, to help us meet our commitment to answer more than 80% of consumer customer calls from within the UK by the end of this year.

Fibre is underpinning the growth at Openreach with almost half a million premises taking up the service this quarter via dozens of service providers. The fibre market is highly competitive and growing all the time, which is great news for the UK economy. Our superfast fibre broadband network is available to well over 24m homes and businesses. We will help take fibre coverage to 95% of the country by the end of 2017, with plans to go even further. Our G.fast trials are progressing well. The UK is poised to take the important journey from superfast to ultrafast broadband and BT is well placed to lead the charge.”

The big news in today’s report is of course the recent clearance of BT’s £12.5bn merger with mobile giant EE (here), which will see Orange hold a 4% stake in the new business and EE’s other parent, Deutsche Telecom, will similarly end up holding 12% with a seat on the board.

As part of the above deal BT has issued 1.595m new shares and paid £3.5bn cash to Deutsche Telekom and Orange in consideration for EE. The cash element was funded by existing cash resources and a drawdown against the £3.6bn committed EE acquisition facility. BT now hopes to cut costs and develop superior quad-play bundles, although they didn’t reveal any new products today.

Otherwise 2016 still looks set to be a difficult year for BT as it will need to contend with Ofcom’s Strategic Review (here), which may or may not split them from control of Openreach, and implementation of the regulator’s proposal to give rivals more access to their Dark Fibre network (here).

Ofcom’s review may also impact their commercial roll-out plans for 300-500Mbps G.fast broadband technology, which is due to start by around the end of 2016 or early 2017 and aims to cover “most” UK homes by 2025. Today’s release also said that the on-going service trials are “progressing well” and would officially complete on-time in September 2016, which is good news.

On top of that the Government will also be looking towards BT to help deliver on the new 10Mbps Universal Service Obligation, although they’ve already hinted that this should be possible (here). Lest we not forget the on-going expansion of FTTC/P connectivity via the Broadband Delivery UK (BDUK) programme.

BT Group also reported that capital expenditure was down slightly to £587m (£599m at the same time last year) and that is after £63m of net grant funding mainly relating to the BDUK programme. To date, BT have deferred a total of £179m of grant funding “reflecting the strong fibre take-up in BDUK areas” (clawback), which could “potentially be reinvested or repaid in future financial years“.

Now we’ll finish off with a few other financial details. Overall BT Group’s quarterly revenue reached £4,594m (up from £4,381m last quarter) and their reported profits before tax over the same period jumped to £862m (up sharply from £642m). Meanwhile their total net debt shrank again to £5,021m.

Finally BTWholesale saw its quarterly operating profit rise from £72m in Q3 to £85m and BTOpenreach delivered a figure of £359m for the same thing, which is up from £318m in the previous quarter. We also note that Openreach reported a quarterly capital expenditure of £321m, which is down from £348m in Q3 and £402m in Q2 (calendar).