BT Group has posted another solid set of quarterly results, saying “new wave” revenues continued to offset the ongoing decline in fixed-line. However, there are concerns over how long BT can continue to rely on broadband and IT services to drive growth.
For the third quarter ending December 31, 2005, BT posted net income of GBP411 million ($714.7 million), up slightly from GBP406 million ($706 million) in the year-ago quarter. Sales rose 8% to GBP4.94 billion ($8.6 billion) from GBP4.58 billion ($7.97 billion) a year ago.
In reality, however, sales rose only 3% when recent acquisitions were excluded. New wave (broadband, services, and mobility) revenues were up 42% at GBP1.6 billion ($2.79 billion), which represents one-third of BT’s total sales.
BT said demand for its broadband services remains strong with the number of wholesale connections now at seven million. During the quarter, there were 700,000 net broadband additions, giving BT Retail a 31% market share.
However, there are increasing concerns that BT has been relying on new wave revenues for too long now. The lack of a mobile operation following the decision to spin off BT Cellnet in 2001 has been a huge headache for the carrier.
Another potential problem comes with the opening up of BT’s local telephone exchanges last year under an agreement with Ofcom. This means that competitors can install their own lines in BT telephone exchanges, a process known as local loop unbundling (LLU), and there are real concerns that LLU will soon have a significant impact on BT’s all-important broadband margins.
There is also the looming threat of VoIP, which continues to cast a shadow over future fixed-line revenue streams, which declined 3% in the quarter.
BT must hope for the continued success of its services arm, where revenue rose 20% to GBP2.2 billion ($3.85 billion) in the quarter. It has realized the importance of this unit, as witnessed by its acquisitions of UK-based network integrators Total Network Solutions and Cara Group. Prior to that, it acquired network services group Infonet Services in November 2004 and Italian telecoms group Albacom in December 2004. When these acquisitions are excluded, underlying growth was still a respectable 8%.
The carrier is looking to capitalize on IPTV services, especially as broadband speeds of 8MBps will be rolled out nationally in the spring. BT has already signed a number of licensing deals with content providers, and said it would launch the IPTV service in the autumn.
BT also has WiFi-enabled two cities in the UK – Cardiff and Westminster (central London) – and plans to WiFi-enable another 10 UK cities.
An advantage that BT has over its European rivals such as France Telecom and Deutsche Telekom is its low debt burden, which was GBP8.1 billion ($14.1 billion) at the end of December.
Yet the markets continue to worry about BT’s business model, especially the mounting pressure it is bound to face from LLU.