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Deutsche Telekom Ponders Future of its 12.5 Percent BT Stake

Tuesday, Feb 28th, 2023 (10:19 am) - Score 5,040
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The boss of German telecoms giant Deutsche Telekom (DT), Tim Höttges, has said that taking out a £5.6bn stake in UK broadband and telecoms giant BT Group in 2015 has turned out to be the “biggest mistake” he ever made, after its value fell by almost £4bn. But DT hasn’t given up on the possibility of doing a deal for BT.

In case anybody has forgotten, DT, which for as long as we can remember have been linked with speculation about a possible takeover of BT, acquired their stake as part of the deal to merge mobile operator EE – then owned by DT and France’s Orange – with BT. But while Orange mostly took the cash, DT opted for a 12.5% stake in BT.

Since then, BT Group’s share value has plummeted due to a variety of issues, such as concern over pensions, huge debts, rising competition for full fibre broadband, regulatory pressures from Ofcom, the impact of a huge investment in premium TV sport content and various other issues. During 2015 BT’s stock price hovered between 420 and 484, while today it’s worth just 140.

In a new interview with the FT (paywall), Höttges admits that he “didn’t understand all of the obstacles around BT” and now wants “my money back“. But getting out of the stock today would be the only sure way to lose, thus Höttges is still looking at other options to “get that money back“, such as increasing their stake in the hope that BT’s fortunes will improve or partnering to do a deal with another big shareholder like Altice UK.

I am not nervous, I will stay quiet, and do the portfolio transaction when I’m ready to do so. There will be a time when we will do a deal,” Höttges said. But it should be noted that DT’s boss tends to say something like this almost every single year. Back in September 2021 Höttges even said (here) “in the next 12 months something [a deal] is going to happen there around [our 12% stake in BT]“. But predictably, it didn’t.

Despite all this, DT still sees BT as holding a strong position in the UK telecoms market, with potential for the share price to rise. So, might we see DT and Altice UK’s Patrick Drahi (French billionaire) making a play for the UK telecoms giant? According to Höttges, Drahi is “sitting in front of the hole waiting for when the mouse is ready, to catch it,” but to do that he’d need to satisfy the UK government first. Easier said than done.

The UK government last year dropped their “full national security assessment” of Altice UK’s move to increase its stake in BT from 12.1% to 18% (here and here). But an 18% stake was never going to be enough to raise any red flags, thus the government’s move was largely seen as a warning shot to those that might try to take foreign ownership of a “critical national telecoms infrastructure” provider like BT.

 

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Mark-Jackson
By Mark Jackson
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 and .
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Comments
27 Responses
  1. Avatar photo anonymous says:

    Even though I don’t like BT and the way they implement limited products (asymmetric anyone, delay over doing FTTP because FTTC was cheaper and more limiting making leased lines look better), they are still in a good position as most core stuff is via BT anyway. VM have more of a pressing issue due to ALTNETS stamping in their area and the fact they aren’t true fibre yet util 2028 (hence their own race deploying).

    I’m sure other BT fans will rush to the defence…

  2. Avatar photo Matt says:

    There are far worse things that could happen to BT than a takeover by Deutsche Telekom. Telekom have form in running the businesses they take over well and investing in them.

    1. Avatar photo Ad47uk says:

      We have more than enough British companies owned by foreign companies or partly owned by them, Need to stop these takeovers. Openreach need to come back under government ownership.

    2. Avatar photo Alex says:

      What evidence is there that government ownership of Openreach would be successful? And how would you compensate competitors?

      Oh, why am i bothering…

    3. Avatar photo anonymous says:

      Nothing against BT being private IF there was an EFFECTIVE regulator with some gumption.

    4. Avatar photo Alex says:

      ‘Effective’ is totally subjective. You have your view and you make not like it, but Ofcom has basically done what successive Governments have asked it to do in telecoms.

    5. Avatar photo anonymous says:

      Back to as I originally said. A regulator with some gumption. To have that might mean the government making some changes.

    6. Avatar photo Reality Bytes says:

      ‘Openreach need to come back under government ownership.’

      Great! You’re going to help pay for it with the income tax you’re paying out of your £10 per hour, 30 hours a week + universal credit, right?

      Nationalising Openreach isn’t happening for many reasons, not least of which that Thatcher’s government ensured it was poisonous to do so. I’m not using any kind of exaggeration there – the privatisation of BT had plenty of poisoned pills in it for renationalising, not least of which pensions.

    7. Avatar photo Ad47uk says:

      @Reality Bytes, we already pay for it in lots of ways, how much money have been skimmed of council tax and even the TV licence to get openreach to build where they would not have bothered? Not that I pay a TV licence these days. This is the problem, the tax payer props up too many private companies

    8. Avatar photo Joris Bohnson says:

      Yes, let’s bring Openreach back into government’s hands and then slap it with public sector spending caps and restrict their ability to borrow when parts of BT’s pension hole gets shifted to Openreach!

      But if BT/Openreach were to for some reason go into administration, I’d expect the Government to save it.

      Openreach decisions haven proven to be bad, as well as Thatcher’s meddling preventing innovation in Telco all those years ago also proving to be stupid. If anything BT should let Openreach go on its own path but that’s also impossible.

  3. Avatar photo GNewton says:

    I don’t feel sorry for DT. Who in their right mind would invest in BT?

    1. Avatar photo Fastman says:

      happy as ever Gnewton i see

    2. Avatar photo anonymous says:

      Perhaps if might be happy if he’s on an ALTNET, lapping up that symmetric upload speed which BT / Openreach simply don’t want to allow on their FTTP. Sorry, had to get that comment and dig in at BT / Openreach somewhere 😉

    3. Avatar photo Ex Telecom Engineer says:

      “I don’t feel sorry for DT. Who in their right mind would invest in BT?”

      Who in their right mind would pump money into Altnets?
      It’s clear the Altnets would fail without OFCOM pinning BT down, you only have to read the headlines around Equinox to see the true picture. There are a lot of negative narratives spun around BT, and used to pull the stock price down in my opinion; For example the story about VMO2 taking over Talk Talk, which had no logic to it, but knocked 7% off BT’s share price and formed part of a bigger extended fall of around 30%. The market’s been playing games with the Telecom sector for a long time, pulling the established sector players down while institutional investors pick up large stakes and big money channelled into Telecom infrastructure. There’s a limit to the amount of regulatory control OFCOM can exert over BT, they are probably at the boundary of that control now.

    4. Avatar photo Reality Bytes says:

      ‘Who in their right mind would pump money into Altnets?’

      Plenty, into the right altnets. Doesn’t change that BT’s share price has cratered over the past years.

      Rather than comparing them to altnets how are they doing next to France Telecom, Telefonica and Deutsche Telekom, their peers? Genuine question – I can’t be bothered with comparing it but those are the benchmarks, actual incumbent former publicly owned monopolies.

      If BT are substantially underperforming them that’s an issue with BT, or with the UK as a whole.

    5. Avatar photo Ex Telecom Engineer says:

      “Plenty, into the right altnets”

      There is no right Altnet; They’re all financed by venture capitalists, hoping to make a fast return and relying on the regulator to help them get there. Clearly a large number of them will fail and will likely struggle to find a buyer due to location and lack of take-up.

    6. Avatar photo Reality Bytes says:

      ‘There is no right Altnet; They’re all financed by venture capitalists, hoping to make a fast return and relying on the regulator to help them get there.’

      ‘Clearly a large number of them will fail’

      The ones that don’t fail are the right altnets. The idea they’re all financed by VCs looking for a fast return is laughable: some are funded by, among other entities, pension funds. There’s a group famous for seeking fast returns. Not sure https://www.digitalbridge.com/ for instance fit your description.

      They aren’t relying on the regulator to get there. They’re relying on a stable regulatory environment, much as BT did for decades.

      You are basically saying BT good, all altnets bad. BT competitive, market driven, altnets fly by night VC funded, relying on Ofcom to get by. Nonsense. BT spent decades coddled by regulation. Folks had to buy a telephone from BT to be allowed to plug it into the PSTN. No-one could build a competitive network until the 80s.

      Ofcom now have to tread a fairly fine line. I’ll be the first to jump up and down if it goes too far however, based on the experience of telcos abroad, and yes PIA or similar has been a thing abroad it’s not some unique UK thing Ofcom invented to devalue your BT shares and punish the business, the company itself took care of that, it’s largely okay.

      Virgin Media need to be made to wholesale. Access to their physical infrastructure not necessary as it almost universally overlaps with Openreach. Openreach should’ve been dark fibre not PON so fibre products were sold similarly to LLU but over optical fibre not copper, but that’s life.

      PIA brings altnet deployment costs closer to those of Openreach but definitely not equal.

    7. Avatar photo Ex Telecom Engineer says:

      “Openreach should’ve been dark fibre not PON so fibre products were sold similarly to LLU but over optical fibre not copper, but that’s life.
      PIA brings altnet deployment costs closer to those of Openreach but definitely not equal”

      Openreach don’t actually own the ducts, poles, wayleaves, or the Fibre, BT do. Openreach is basically a workforce and access network management company; They’re about as close to being a separate company as you can get, without actually being completely spun off. I suspect as soon as the BTPS is bought out, as an insurance buyout by the trustees, Openreach will be IPO’d soon after and become a company in its own right, possibly within the next 10 years.
      I’d say the Altnets have a stable regulatory environment. OFCOM ensures that all wholesale customers are treated equally by Openreach and all charged the same, including BT. It’s true that BT currently have the benefit of Openreach’s earnings and much of the accounting involves moving cash between different accounts, but that’s fair enough since the Government sold BT as a PLC to shareholders, meaning BT shareholders therefore own the network and infrastructure assets and morally deserve a fair return on their investment.
      Something else to consider, BT are doing a complete network refresh with all the legacy network going, likely costing £15 Billion plus, so OFCOM need to consider that when they look at competition complaints. The success of Altnets shouldn’t depend on nobbling BT, since BT have to finance building a new network too. If the Altnets can’t win without OFCOM having their backs, then they shouldn’t be in the game.

    8. Avatar photo Reality Bytes says:

      ‘Something else to consider, BT are doing a complete network refresh with all the legacy network going, likely costing £15 Billion plus, so OFCOM need to consider that when they look at competition complaints.’

      Indeed. They can consider the huge reduction in operational expenditure from closing over 80% of exchanges and no longer maintaining copper as Openreach retire it. I believe Verizon saw substantial decreases in operational expenditure, 40%+, Openreach it’ll be even higher as they can retire many exchanges with the obvious savings on rent and utilities, especially power.

    9. Avatar photo Ex Telecom Engineer says:

      “Openreach it’ll be even higher as they can retire many exchanges with the obvious savings on rent and utilities, especially power.”

      Yep, convergence, PSTN/legacy network retirement and Exchange building closures will all add to the bottom line, but the new network still has to be paid for, through Capex, in the meantime.

    10. Avatar photo GreenLantern22 says:

      There is no doubt that BT enjoyed the duopoly and lacked vision to move to FTTP much sooner. They wasted money on FTTC and caused a lot of people to have bad internet for years. Is BT evil for resting on their laurels? Not really. They did it because they were left to do it. Neither the market nor the regulator pushed them to start earlier. Who knows how much this costed the UK economy? But from everything bad something good can come out too. The rise of the Altnets is great to see. Now both Altnets and BT via Openreach are racing building FTTP networks for everyone to enjoy. And Virgin Media is also in panic mode too. Is OFCOM “protecting” Altnets? Rightly so to the benefit of more competitive market. If BT would had moved to FTTP instead of FTTC we would have ended up with a much more uncompetitive market. Maybe VM would have jumped the gun and moved to FTTP earlier too. But two main players usually don’t make a good market. So hopefully the Altnet consolidation means we get a third “big” player to challenge BT and VM…

    11. Avatar photo Ad47uk says:

      @Ex Telecom Engineer, plenty of people will invest in Alt networks or do you want openreach to be the only network? You say alt nets are all financed by venture capitalists, what is the difference in openreach shares being owned by foreign companies? I am glad that Openreach and Virgin for that matter now have more competition, let’s hope it stays

    12. Avatar photo Reality Bytes says:

      ‘but the new network still has to be paid for, through Capex, in the meantime.’

      Same with everyone else using PIA, though Openreach get the added bonus that they don’t have to use PIA so it’s cheaper for them than everyone else.

      WLR switch off isn’t dependent on FTTP, exchange closures require only FTTC.

      Openreach don’t own the poles, etc, this is true. Openreach aren’t funding their FTTP roll out either, BT Group are. If Openreach were actually a separate entity I would see your point: they are not.

      When considering the competition complaints part of what Ofcom might look at is that no-one can do FTTP as cheaply per premises passed as Openreach. No-one. Another part is that the tail end of the FTTP deployment, the last 15% or so is being cofunded by the taxpayer.

      The areas that altnets are ‘cherry picking’ and building at £300 per premises passed Openreach are building at closer to £200. G.Network’s cost per premises passed in London has been insane, Openreach are ticking over around the £300 mark in the same places. Gigaclear have been overbuilt by Openreach. Gigaclear clocking in over £1k, Openreach sub-£600 per premises passed and that’s the harder stuff. Most of the nation is in the £200-£300 range with cash left over in many cases for those harder £500+ premises edge cases in exchange areas while still preserving the average.

      I’m sure that’ll also be kept in mind by Ofcom when measuring up competition complaints.

      A number of BT Group products are regulated based on what a reasonably efficient competitor may be able to get their costs down to, and outside of Openreach BT Group have to consume the same Openreach products their competitors do. FTTP doesn’t follow this pattern for obvious reasons so, no, I couldn’t care less about the £15 billion. Openreach have a guaranteed anchor tenant for their bitstream GEA service in BT Wholesale, with Sky and TalkTalk two other large customers. I’m sure Ofcom keep that in mind too.

      Ofcom are quite aware of Openreach’s advantages over new entrants and I’m sure keep it duly in mind.

    13. Avatar photo Reality Bytes says:

      Something to think about with regards to Openreach and what should be kept in mind as far as FTTP build costs go:

      https://www.openreach.com/news/openreach-focuses-broadband-build-plans-on-upgrading-millions-more-rural-homes/

      ‘Openreach today outlined plans to build ultrafast, ultra-reliable Full Fibre broadband to at least three million more homes and businesses in some of the UK’s hardest-to-serve communities[ii] – meaning fewer homes and businesses will require taxpayer subsidies to upgrade.’

      Sounds good. Reading note 1:

      ‘The vast majority of these locations fall within the ‘final third’ or ‘Geographic Area 3’, which is defined by Ofcom as 9.5 million premises in the least commercially viable areas of the UK for competitive broadband infrastructure upgrades.’

      Must be costing them a fortune for these 3 million premises in the least commercially viable areas.

      Then you click on note two:

      https://www.openreach.com/news/openreach-focuses-broadband-build-plans-on-upgrading-millions-more-rural-homes/#_edn2

      ‘Build costs fall within BT Group’s publicly stated range of £300-400 per premises passed, on average and excluding connection costs.’

      VMO2 are spending over £600 per premises passed ‘cherry picking’. CityFibre are at an even higher cost than VMO2.

      Even the ‘cherry picking’ altnets using nothing but PIA are coming in within the £300-400 per premises passed on average range in large towns and cities while Openreach are able to do ‘…the majority of homes and business in around 1100 exchange locations – including market and coastal towns, villages and hamlets spread across the entire UK. The locations include Kirkwall in the Orkney Islands, Cardigan in Wales, Keswick in Cumbria and Allhallows in Kent.’ for the same price as these cherry picked locations.

      Anyone keeping an eye on how much Openreach actually claim to have spent on FTTP so far? They’re a third of the way through and from what I can tell haven’t spent £2 billion yet.

      I’m starting to wonder if that £15 billion involves some creative drawing in of other things. Anyone remember the investment in FTTC that ended up being half operating expenditure?

  4. Avatar photo haha says:

    Well they just started to send out the latest price rise e-mails – BT and PN anyway

    1. Avatar photo Ad47uk says:

      PN sent me mine a couple of weeks ago, I will see if they can do me a good deal after March, if not I will look elsewhere when contract ends in June.

  5. Avatar photo Nick says:

    Deutsche Telekom has had investments in the UK since the early 90s. First with Eurobell Cable franchises and then 100% takeover of One2one (Mercury Personal Communications) which was a mess under the ownership of C&W and US West.

    Deutsche Telekom is usually good at investing in products and services and they would run BT well. I don’t see what the problem is.

    With the few people who think renationalising BT would benefit anyone is mad because you’d have a publicly owned telecoms company which the government will sure run it into the ground and then you have all the competitors around it including the altnets and Virgin Media which will invest a lot more into their networks and a lot of money into marketing whilst the nationalised BT will fall behind and be a liability to tax payers.

    Not to mention the prohibitive cost of renationalising the business in the first place. Renationalising and too much regulation does not benefit anybody.

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