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Investors Spotted Sniffing Interest in BT’s UK Openreach Network

Thursday, May 24th, 2018 (8:31 pm) - Score 4,313

Reports indicate that Openreach, the “legally-separate” network access division of UK telecoms giant BT, is currently courting informal interest from private equity and infrastructure investors. A mix of inbound proposals are allegedly being considered, such as minority and majority stake purchases.

According to Bloomberg’s sources, the deliberations are said to be at an early stage and BT could just as easily decide not to pursue them. Recent estimates from Berenberg and RBC Capital Markets have put Openreach’s value at anywhere between £12bn to £25bn and its national fixed line network would be an attractive target.

The fact that private equity firms currently seem to be lining up to plough bags of money into fibre optic builds, as well as BT’s desire to return their business to more positive growth, would appear to lend some weight to the current market speculation.

On the other hand such a move would have to be weighed against the usual bugbears, such as how any deal might impact Openreach’s current position with respect to telecoms regulation and their voluntary agreement with Ofcom. Not to mention the still unknown quantity of Brexit and BT’s desire to maintain some control over their national infrastructure.

The question of how to correctly value Openreach is another issue, particularly given how fast the broadband market is changing, including the inevitable challenges of shifting from copper to fibre optic lines over the longer term. Equally it perhaps won’t hurt BT’s share price to be seen talking about such a move, even if the talks don’t end up amounting to anything.

The industry rumour mill also suggests that BT could be considering a sale of EE’s mobile towers, which seems unlikely but then these are interesting times. In the meantime Openreach will continue with their plan to roll-out G.fast to 10 million UK premises and Gigabit capable FTTP to 3 million premises by the end of 2020, with an ambition to push the latter to 10 million by around 2025.

Naturally BT has not commented on the market speculation. In any case investors may first wait to see what happens with both Brexit and the on-going Future Telecoms Infrastructure Review, which is due to report this summer. The review is expected to suggest new approaches to help boost investment in “full fibre” and future 5G Mobile networks.

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18 Responses
  1. Avatar Optimist says:

    Perhaps investors are interested in selling the copper network for scrap?

    1. Avatar 125us says:

      Scrap prices have fallen. The cost of removal would be greater than the revenue raised. That’s why cable theft has been in decline.

    2. Avatar GNewton says:

      Openreach is fully owned by BT, and Openreach does not own the network assets, the latter belong to BT. So why would anybody want to co-invest in Openreach? It doesn’t make sense.

    3. Avatar Steve Jones says:

      The value of all the copper in the network is about £2.5bn, even before the immense cost of trying to recover it, stripping off all the insulation and disposing of that. Then there is the little matter that there is a regulatory requirement to deliver MPF and it would require of the order of £15-20bn to replace it all with fibre.

      nb. in 2011 Tim Worstall did an appalling job of estimating the value of the copper in BT’s network in 2011 at £50bn, about 20 times it’s actual value as purified copper ingots on the London wholesale market.

  2. Avatar AndyC says:

    Would ofcom even let it happen?

    I can see virgin and all the other full fibre providers doing everything they could to prevent it happening so it wouldn’t threaten them.

    Its still the same government bureaucracy that stopped bt openreach from doing full fibre years ago.

    1. Avatar CarlT says:

      Virgin Media wouldn’t oppose it, strengthens the case for them not to be regulated. Far more chance of those that use the Openreach network, TalkTalk, Sky, Vodafone, being concerned about potential for it impacting their access even though that is unlikely.

  3. Avatar Marty says:

    If a private firm bought openreach network I bet the line rental would soar through the roof. Although I wouldn’t mind paying extra if it leads to some sort of FTTP deployment instead of sweating copper assets by them or anybody else who decides to purchase it.

    1. Mark Jackson Mark Jackson says:

      Not necessarily, as this is partly where the challenge with regulation starts to come in. Openreach can make certain changes but many of those are subject to Ofcom’s charge controls due to the operator having Significant Market Power (SMP).

    2. Avatar Chris says:

      And it’s not already through the roof?

    3. Mark Jackson Mark Jackson says:

      If you’re talking about copper line rental then the wholesale cost has actually gone down over the past few years, it’s the retail providers that have pumped it up dramatically.

    4. Avatar John says:

      ISPs should be made to pass through the wholesale cost and not x it by 1.5 first.

    5. Mark Jackson Mark Jackson says:

      So at the consumer level you’re demanding ISPs absorb the 20% VAT, add no services on top of the line to make it useful and make a loss on every one sold? Nice business strategy :).

  4. Avatar wireless pacman says:

    But Openwretch don’t actually own the network, they just manage it.

    1. Avatar Paul M says:

      Indeed. Openreach are just an asset management and logistics company.
      As for the assets, there’s no way that bt can sell them and spend the cash on directors’ bonuses because they’re necessary for the pension fund to stay afloat.

  5. Avatar Meadmodj says:

    If I was BT I would partner with an investment company to create a new company. That company would then install FTTP using Openreach as the operator and BT as the back haul. Ofcom would have not have justification to regulate this entity until it reached a SMP or regulate VM, Talktalk and Altnets with simmilar rules.
    The partner could be an inestment company, Deutche Telecom, Vodafone etc. It is clear from Talk Talk, Gigaclear investments that Fibre is an attractive investment.
    Whatever happends if we can get investment into FTTP all the better.

    1. Avatar CarlT says:

      Not sure what you mean. Are you saying invest in Openreach and use BT Wholesale as a wholesaler?

      Far better not to – BT Wholesale is regulated.

    2. Avatar Meadmodj says:

      I mean some form of JV between BT Group and an large investor. The JV would effectively be on the same footing as an Altnet. They would utilise BT duct and possibly use Openreach as the maintainer but the new Fibre network would be owned by the JV. In this way any Fibre network installed would be for the exclusive use of the JV who could sell it themselves or sell access to Sky, Plusnet or even BT Consumer without price regulation.
      My thinking is that Ofcom could not justify regulatory action because BT would be a minor shareholder and would not have an SMP for years.
      Currently any BT investment in Fibre only returns the marginal OR profit. It does not seem fair that Talk Talk can invest £3m in Fibre in places like York and retain exclusivity but BT can’t. It is what is currently holding BT (and us) back. Ofcom can stick with their copper regulation and Useless Service Obligation.

  6. Avatar John Nolan says:

    Rather ironically the JV mentioned above is not that far from the Harper model…..

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