BT Ponder More Cost and Dividend Cuts to Fuel FTTP Broadband Rollout
BT’s top brass has this week warned investors that they may have to reduce capital expenditure, cut costs, borrow more and reduce their dividend in order to fund the planned rollout of Gigabit capable Fibre-to-the-Premises (FTTP) broadband ISP technology, which aims to reach 15 million UK premises by around 2025.
At present the telecoms giant is still working its way through last year’s strategy from their former CEO (Gavin Patterson), which among other things involved cutting 13,000 jobs over a three year period (here). This was somewhat mitigated by the hiring of several thousand additional engineers at their Openreach division. The problem is this won’t be enough.
BT currently forecasts that it should generate an average normalised free cash flow of £2bn in the year to March 2020 but that falls to around £900m when you factor in pensions and other costs. At the very least this implies that the operator’s current cash dividend payout of £1.5bn is unsustainable in the current climate, although it was maintained at the last report.
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However BT’s new CEO, Philip Jansen, said this week (FT paywall) that it would cost “roughly” £400m to £600m (capital expenditure) a year to meet their FTTP ambition of 15 million UK premises by around 2025. Back in May 2019 Openreach said they were delivering FTTP at the “lower end” of their £300 – £400 per premises passed cost range (here) and could “pass around 50% of UK premises within this range of costs” (i.e. £4.5bn to £6bn for the first 15 million premises).
Openreach previously estimated in 2017 that reaching just 10 million premises could cost between £3bn to £6bn and costs rise disproportionately the further you go outside of the most lucrative urban areas.
Perhaps unsurprisingly BT’s Chairman, Jan du Plessis, this week warned investors at the company’s annual meeting that the dividend payout may have to be reduced in a “year or two,” which would be used to help fund their “full fibre” deployments. Jan also hinted at additional support by reducing capital expenditure in other areas, cutting more costs and extra borrowing.
The company’s new CEO, Philip Jansen, is already rumoured to be considering another round of significant job losses when the current programme of cuts comes to an end (here). One report even predicted that as many as 25,000 staff from its 100K strong workforce could be on the chopping block (not engineers though, obviously).
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Lest we forget that BT doesn’t only have FTTP costs to consider going forward. Elsewhere there are also big challenges in 5G deployment and future spectrum auctions, growing debt, TV content and so forth. Clearly there are no short-term fixes here and it will be a long road back to recovery, which also assumes that the operator can fend off a growing market of alternative networks.
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
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Good. National FTTP is a major infrastructure transition and it’s about time that shareholders made their contribution via temporarily reduced dividends. The faster it’s rolled-out the faster Ofcom is likely to allow retirement of copper, which will pay back later.
BT has been eagerly consuming government subsidies with BDUK allowing them to build ‘uncommercial’ FTTC cabs (and more fibre spine out to the edges of the net) which miraculously become commercial when open for orders. Of course clawback has some mitigating effect, but not enough, and not fast enough.
The sooner they can complete their commercial FTTP rollout, the sooner they can use that manpower to accelerate any further full-fibre BDUK extensions funded by clawback.
‘BT has been eagerly consuming government subsidies with BDUK allowing them to build ‘uncommercial’ FTTC cabs (and more fibre spine out to the edges of the net) which miraculously become commercial when open for orders.’
Que?
The commercial deployment is going to take until at least 2025 and is going to become progressively more manpower intensive.
BDUK is backburner now. Its low priority.
There will be a lot of public-funded investment soon as Boris has promised “fibre to the country” by 2025. Let’s hope he doesn’t get his FTTC and FTTP all confused.
And you believe him?
Even corbin has done a u turn to try get into power.
In his first televised debate few weeks ago Boris did mention Full Fibre and he was also informed to tell the viewers in the audience that Spain has Full Fibre by 80% while in the UK is 7%.
We know this is basically a political diversion following his scandal with his girlfriend and also the fear of not being able to deliver Brexit.
All of this is a trick to divert the topic away from the other issues concerning his personal life.
Everyone knows that Full Fibre by 2025 for the entire country is almost impossible from the current 7% unless the UK was a powerhouse economy like China with cheap engineering labour cost and minimum red tape.
Mathematically to achieve 100% FTTP by 2025 the UK needs to accelerate by 15% FTTP coverage each year for the next 6 years! 15×6=90%. 90+7=97% but we know that is just not going to happen!
Current jump from last year was only 3% from 4% up to 7% this year. That means from now until 2025 with the current pace. 3×6=18% 18+7=25%. UK will achieve at least 25% FTTP coverage in 2025.
This means every year for the next 14 years the UK must jump its FTTP coverage by at least 6-7% consistently for the 2033 target to be achieved.
Next year the UK needs to jump to 13-14% FTTP and the year after 20-21% and so on. At the moment this isn’t happening with a 3% jump the total coverage will only be 3×14=42% 42+7=49%. With the current rate of progress the UK FTTP coverage will only be 49% by 2033 no where near 100% FTTP.
Hence why I have always been sceptical about the 2033 target, nevermind the 2025 nonsense. Especially when you factor in red tape and wayleave issues, something I am facing with my building management last 4 years to no avail. If these aren’t addressed even 2033 target would be unrealistic for my building alone, never mind the entire country!
Of course I don’t believe him! I was being ironic
With the money saved from escaping the EUSSR he could quite easily do it.
@Mike
I thought that the money saved from leaving the EU was being spent on the NHS? In any case, the possible saving never was as much as the dodgy claims from politicians. And beside, the issue is more one of delivery capacity constraints, which will be hindered if anything by leaving the EU – witness the decline in capacity in house building etc as citizens from other EU countries decide to avoid the UK due to the rampant xenophobia and racism being displayed by some in this country.
@Rahul
In fairness to all the FTTP installers now the rate of change of installation is non linear.
What I am say is that everyone is increasing their rollout rate year on year and that the effect is cumulative.
So while you suns are right they don’t reflect what is going on in the ground.
Things are accelerating.
Oh ‘Mike’…
Anyway Spain has a far higher proportion of the population in MDUs than here which helps a ton. They have also had copper retirement and alternative networks building en masse for years. However much cash is thrown at it there is only so much FTTP that can be done in the UK in a set time. We don’t have the manpower and the work is more involved.
@A_Builder: The rate is not linear for sure. But even if there is a fluctuation in acceleration the rate needs to be drastically high to make up for the loss of time on the years where the percentage of progress is slow.
For example let’s just say the acceleration increases to something like 10-15% yearly coverage passed after 3-5 years. But over the next 3-5 years the rate of progress was only 3% like it has been last 1 year. It will still lag behind and won’t achieve the 2033 target, it will not even be able to hit 50%. Considering the 3% increase was the best ever UK progress on FTTP so far.
The challenge would be even greater because then the acceleration needs to jump even higher than 10-15% on some of the years to compensate for the lack of progress.
Likewise a drastic acceleration of the roll-out now but a slowdown again in a few years time will still make the target unattainable.
The circumstances would have been very different if the UK was now sitting at 20% FTTP. But 7% is still a very long journey away from a 2033 target.
Everything that is going on the ground is statistically well documented and I’m afraid that I don’t see much optimism in the yearly coverage jumping to 10+% any time soon and by the time it happens it will be too late to achieve 100% coverage by 2033. I think the acceleration might jump to 5% yearly at best in the next couple of years and the UK will probably hit 60-70% FTTP coverage by 2033.
Perhaps 2040 100% coverage is a little bit more realistic.
I remember these sorts of announcements being made when ADSL was first being rolled out. I thought to myself at the time, I’d never get ADSL… Before we know it, most of us will be on FTTP and copper will be a distant memory.
Well my exchange was only upgraded to ADSL2+ 18 months ago. So while you may be right that “most of us will be on FTTP”, there will be some of us on ADSL for a long time yet.
100% fttp is 2030s at the earliest. 50% is pretty realistic in 2020s
It will be interesting to see what impact the ‘Universal Service Obligation’ (from March 2020) has on all this. Will BT struggle when they have thousands of customers demanding at least 10 Mbps download and 1 Mbps upload? I know that they have a cost ‘get out’ clause (£3,400 per property) and have time to get the work done (maybe more than a year), but still. Anyone have thoughts on this?
Will have to wait and see But from my non industry not an expert position, I think the USO will have minimal effect on the FTTP issue. USO will be delivered using the cheapest delivery method to meet the Low requirements it demands.
Even if say 100 properties could get FTTP for under the 3500 threshold each, If the USO can be met by non FTTP technology for less then it most likely will be.
Many will likely get much better than the USO demands via 4g. Unless a long term plan and investment for future FTTP is made when choosing the sites ie pre planning the backhauls to those sites to allow shorter/cheaper FTTP expansion later, it’ll be as dead a duck as the FTTC cabs are for FTTP.
T are struggling to keep up now my Internet is rubbish but they are increasing cost on a regular basis so I am now going to cancel
BT have already suggested that out of approx 600,000 premises eligible for the USO they will be able to provide coverage to 450,000 by 4G so that only leaves 150,000 that they need o do something about – I live in London SE16 on an EO line – Openreach has no plans – Hyperoptic have no current plans – my gut feeling is they will offer 4G to us which will then get overloaded and won’t meet the USO standard as more people go for it – the speeds in the evening will drop down – I checked out 5G but so far EE & Vodafone don’t have good indoor coverage in the area – just waiting to see what Three come up with but suspect with all the trees in the area the coverage will be poor
Wont increasing 4G coverage in Urban areas just come with a whole different set of issues for deployment tho. I don’t know but I’d assume planning, wayleaves and restrictions on new masts in dense urban areas is pretty bad by comparison with rural.
If that’s harder or more expensive than civils for FTTP/C I have no idea. But I hate to imagine the nightmare that legacy infrastructure presents in London where they must have been stuffing ducts and trenches full for decades along with every other utility presence.
I’d be surprised if the dividend was cut by any meaningful amount. The shareholders have suffered enough as it is.
Nobody feels sorry for the shareholders. They knew the risks, nobody forced them to buy BT shares.
How about the pensioners on the other end of the pension funds invested in those shares?
Weirdly enough there are more important things than getting fibre to your home. If BT are planning on withdrawing dividends or reducing them these funds need plenty of notice so that they can reallocate capital.
“Nobody feels sorry for the shareholders. They knew the risks, nobody forced them to buy BT shares.”
I think you meant:
“Nobody feels sorry for the BT shareholders. They knew the risks, nobody forced them to buy BT shares.”
It’s ok to feel sorry for other shareholders, just not the BT ones. 🙂
The main issues with the share price have been lack of investment, regulatory arguments and the pension deficit.
The more sophisticated investors were getting pretty worried that BT’s position would become unstable once bandwidth demand rose over what FTTC could cater for. This would tip customers into the hands of VM and the Alt Nets.
The problem was that previous manglement seemed unable to deal with any of this issues and preferred smokescreens and excuses.
A lot of BT investors, myself included, have campaigned for more investment in fibre for years.
So this won’t come as any surprise to the pension funds if the divy is cut for a few years to pay for this increase in capital value.
It is not like a Gordon Brown ‘investment’ where the money evapourates!
Investors were the biggest obstacle to the programme. The case for FTTC was a tricky one to make.
BT aren’t in a vacuum with an all-powerful single person making the decisions. Had shareholders demanded increased network spend they’d have had it.
The business case is now about there and the build isn’t too late, it’s about the right time.
@CarlT
Investors were openly supporting more investment. You can see that in a number of press articles where major fund managers are saying invest.
Having been in on some of the group calls I know what was said.
Group think is not a good thing where there is a business orthodoxy to be maintained. The new crew are not interested in old group think and are clean piece of paper, does-this-makes-sense guys.
Now that BT are building out FTTP at a massive rate, the shares must be booming then :s
@FibreBubble
A little more progress, proof of concept, is first required before that happens
1) transition test areas to full fibre with migration and
2) delivery of a sample virtual copper switch off area
By virtual I mean that it is an effective copper switch off with nobody connected to it even if the copper is still live and unused in the background.
3) understanding what the see-saw tipping point is where the OPEX saving (from copper switch off) will pay for the CAPEX run rate amortised over X years. My fag packet calcs say about 15% FTTP coverage over 10 years then is then self sustaining.
So a company with a total monopoly is managing to make a huge hash of it. Openreach have had it so easy for so long, investments in fibre should have been made years ago.
My sympathies go out to the employees who are potentially going to lose their jobs due to greediness by the few at the top.
Other have been able to build networks since 1985.
“Other have been able to build networks since 1985.”
That being the case, why don’t you have a fibre line by now?
5hrs 22mins. Hurry up
xxx
1 Day, 17 Hours, 22 Mins – get it right! 🙂
Anyway, Steveocee is right, BT is a regulated company because of its significant market power, it’s fibre investments are coming years too late!
When Openreach go full fibre a bunch of people will lose their jobs. Your comment is a bizarre one.
The regulatory and commercial environments made building FTTP to scale previously not viable.
The commercial environment has changed, the regulatory one is changing.
I’ve never quite understood why some people think that there will be some huge FTTP rollout coming soon. Let’s look at an area that I happen to know: W12 postcode in Inner London as I’ve a friend whose house is opposite Wormwood scrubs with only DSL. In fact, the area west of Wormwood Scrubs to the North Circular bounded by the Bakerloo Line to the north and the A40 to the south (including East Acton, W3 postcode) has patchy Virgin Media coverage, several areas with only sub-24Mbps broadband and virtually no BT FTTP.
I don’t know why this area has poor broadband but it’s clear to me that some serious work is needed to substantially improve it.
@Roger_Gooner
Because the evidence of my eyes is that there is a lot of FTTP going into the ground…..all over the place…..
I agree that only 2 years ago that comment would have been very valid but things are moving very fast now and OR are having the fight of their lives to stay ahead of the Alt Nets and VM who now have plenty of investment cash to spend.
If a Pikey nicks my copper telephone line do you think they will swap it with a fibre one? It might be a quicker way of gettin fttp installed.
Probably the best suggestion all week LOL !
nope not going to happen as that would force you to buy and FTTP service and remove you from your copper service – Openreach is not allowed to do that as it would be in equievalent to the copper only service provider who might have provided that premises using a LLU or WLR service