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BT expects hit to Openreach earnings as it offers discounts for faster broadband

BT said telecoms firms that use the Openreach network will receive discounts on fibre broadband that “go beyond” pricing controls set by regulator Ofcom
BT
Openreach plans to bring superfast broadband to three million premises by 2020

BT Group plc (LON:BT.A) expects its network division Openreach to take a hit to earnings and revenue this year on plans to offer wholesale customers discounts on superfast broadband products.

The firm said telecoms companies that use the Openreach network will receive discounts on fibre broadband that “go beyond” pricing controls set by regulator Ofcom.

It expects the move will have an impact in the “high tens of millions of pounds” on Openreach's revenue and underlying earnings (EBITDA) in fiscal year 2018/19. BT said the final net impact on the group will depend on "retail market dynamics". 

Despite the impact of the new pricing structure, BT left its financial outlook for the year unchanged.

The new wholesale prices will be available to telecoms firms from August 21 by an agreed amount over a three or five-year period in return for switching their customers over from standard copper broadband connections to superfast fibre platforms.

Openreach upgrades broadband infrastructure 

Openreach is upgrading the UK’s broadband infrastructure by replacing ageing copper lines with fibre optics to deliver improved internet speed. It has agreed to upgrade three million homes and businesses by 2020.

The cost of the work is expected to be passed onto BT's customers, having said last month that it was raising prices for broadband, landline phone services and TV sports packages for the second time this year.

READ: BT Group hikes broadband, landline phone services and TV sport package prices for second time this year

"We've invested more than 11 billion pounds into our network over the last decade and whilst that's helped the UK become a global digital leader, there are still millions more homes and businesses that could benefit from the better broadband infrastructure we've built,” said Openreach chief executive Clive Selley.

He added: “So far, 10 million households and businesses have upgraded to superfast broadband on the Openreach network, but such services are available to almost 28 million British premises.”

Government proposals for fibre upgrade

The announcement comes a day after the government said full fibre broadband should be fitted in all homes across Britain by 2033.

The Department for Digital Culture, Media and Sport said in its Future Telecoms Infrastructure Review that it wants to see full fibre broadband in 15 million premises by 2025 and that the majority of the population must have 5G coverage by 2027.

The review said the government would "support investment in the most difficult-to-reach areas", which is expected to cost between £3bn to £5bn.

Jefferies maintained a 'buy' rating on BT and raised its target price to 250p from 245p, saying it believes the review is "supportive".

The broker said the positives of the review include injecting urgency into the fibre upgrade and the government asking Ofcom to prioritise investment over interventions to reduce retail prices. 

Ofcom price controls 

In February Ofcom published a draft statement of its Wholesale Local Access market review, saying it would cut the price that Openreach charges its corporate clients for basic broadband speeds.

The watchdog said the basic 40 megabits per second broadband package on its existing copper network will be reduced to £11.92 in 2021, although this was less than the £11.23 that had been expected.

Ofcom backed off after BT complained that strict price controls would stifle plans for investing in broadband infrastructure. 

Shares in BT rose 1.2% to 224p in morning trading. 



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