BT Group CEO “open minded” on UK Sale of Openreach Stake

The CEO of BT Group, Philip Jansen, yesterday said that he was “open minded” about the possibility of selling a “minority” stake in their prized network access division – Openreach – to help fund the UK rollout of “full fibre” (FTTP) broadband, among other things. But they’re “not really interested” in a sale and leaseback style agreement.

The group this year committed to invest £12bn in order to rollout their gigabit FTTP network to cover 20 million UK premises by the mid to late 2020s (2025-30), but funding that purely by selling off parts of their global operations, cutting dividends and restructuring (job cuts etc.) may not be enough to cover the bill.

Earlier this year it was suggested that one solution allegedly being explored by BT was the possibility of selling a stake in their Openreach division to investors (here), although the operator denied that. Indeed, it was unclear how this would even work, 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 would probably also be considered a strategic national asset by the UK government, which means that any direct investment may attract additional scrutiny from the both the competition (CMA) and telecoms regulators (Ofcom). However, the sale of a “minority” stake might be more palatable, particularly as it would ensure that Jansen could retain some strategic control of the unit, but it would still have to be big enough to make a difference.

Philip Jansen said (Total Telecom):

“Would I be open minded about looking at a minority interest on it, moving that on to someone else? Potentially. But I can’t see us doing that until well after we’ve agreed the regulatory framework, until March, April next year.”

The regulatory framework mentioned above reflects the forthcoming conclusion of Ofcom’s on-going Wholesale Fixed Telecoms Market Review 2021-26 (FTMR), which proposes various changes – many of them related to Openreach – to help boost investment in “full fibre” broadband and high capacity Ethernet (leased line) services for both the residential and business connectivity markets. Naturally, BT can’t really consider the future of Openreach’s ownership until they know what the future regulatory environment is going to look like.

At the same time we shouldn’t forget that the BT Group itself has – not for the first time – allegedly also become a possible target for a c.£15bn takeover attempt by a number of major private equity firms (here), which may be attracted by the company’s historically low share price. But such interest would have to be tempered against the company’s complex regulatory situation and the huge drag from their massive pension liabilities.

Whatever happens in the future, it probably won’t occur until after both the issue of Brexit (trade negotiations) and Ofcom’s review have been concluded.