BT Could Sell Openreach Stake to Fund £12bn UK Fibre Rollout

Reports claim that BT could be looking to sell a significant stake in Openreach to investors as part of a strategy to help fund their £12bn roll-out of 1Gbps capable Fibre-to-the-Premises (FTTP) broadband ISP technology, which has set an ambition (here) to cover 20 million UK premises by the “mid – to late-2020s.“

The trouble with BT Group’s new plan is simply, how to fund it? The operator may be big but their entire market value is only around £10bn and then we have to consider £50bn in pension liabilities, £18bn in net debt and the £1.3bn needed over the next 5 years as part of their restructuring exercise.

Some of the funding will surely come from the company’s “difficult decision to suspend the dividend until 2022,” but that will only bring in c.£2.5bn. Meanwhile we can probably expect the operator to secure a good chunk of the Government’s proposed £5bn programme to help extend “gigabit-capable broadband” to every home by the end of 2025 (focused on the final 20% of hardest to reach premises), but that still isn’t enough.

According to the FT (paywall), the telecoms giant is reportedly considering the possibility of selling a stake in their Openreach division to investors. Quite how this would work is unclear since Openreach is a heavily regulated business that is also “legally-separate” with its own independent board, although they’re still bankrolled by BT.

The network could probably also be considered a strategic national asset by the government, which means that any direct investment may attract scrutiny from the both the competition (CMA) and telecoms regulators (Ofcom). Such a deal might also have a wider political dynamic that is hard to predict and there’s the on-going uncertainty around an EU trade deal to consider.

The report suggests that offers of a potential sale of a stake in Openreach value it at £20bn, which is roughly double BT’s current market value and would certainly solve their funding problems. At the same time fibre optic networks remain a generally attractive proposition for big investment firms and the chance to grab a big chunk of the UK’s largest telecoms network is one that several firms will at least want to explore.

The original report points to three sources as claiming that BT have, over the past three weeks, held talks with both Australian bank Macquarie (they most recently spent big to gobble KCOM in East Yorkshire) and an unnamed sovereign wealth fund, which given the COVID-19 lockdown would probably have only been very limited.

However an article on Reuters, which claims to have spoken with a source close to Macquarie, reports that the investment giant has NOT expressed an interest in Openreach and hadn’t held talks with BT. Alternatively this could be an early attempt by people within BT to drum up some interest in the idea within the market. The UK market for “full fibre” broadband is certainly anything but boring but take this one with a pinch of salt, for now.