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"Fleccy - except the rot set in long before Brexit or Covid. Do you need to rethink that explanation"
I was referring to the recent fall from £2, BT appear to be getting punished for anything and everything. I still stand by what i said in reference to my reasons for topping up. I've got a lot of cash tied up in BT, with my most recent purchases at 106/108/112p totalling around £36,000. I've also recently invested £26,000 in Lloyds and £15,000 in Vodafone, betting that Covid 19 will see a resolution sooner rather than later. If i'm right, i'll be looking at selling around March, with more after April 6th 2021.
Fleccy - except the rot set in long before Brexit or Covid. Do you need to rethink that explanation
‘‘Tis is all about revenue decline & feats around when it stops at a time when Bt needs to spend big imo.
I’d revenues were increasing the money wouldn’t matter.
"I’m trying to see what the market sees & whether BT’s plan will get them out of this"
The Proactive article, you linked to earlier, is a good example of what's been going on with BT. The article was clearly aimed at misleading and portrayed a completely different narrative to the OFCOM statement. I have no idea why the market's got it in for BT, but it appears that it has. Some of the negativity is down to Brexit and BT is being punished nearly as bad as Tui on the back of Covid 19. Ryanair appears to be outperforming BT and IAG/Easyjet are doing slightly worse. Telecoms aren't nearly as badly affected as travel and airline stocks, so there is some sort of dysfunction in the way the market's valuing BT. As I said earlier, I added more BT today and will continue to do so while I can't explain the current low valuation.
Time will reveal the truth, one way or the other. Either the market knows something negative about BT, power players are executing a game plan, or the negativity is so embedded that no one's touching BT apart from day traders and algo's. If the reason is power play, or just embedded negative sentiment, then topping up while the price is getting hammered is the correct strategy. I don't see the reason as being some hidden skeleton, so I reckon i'm safe topping up.
Aus....."Based on assets and previous SP I do think BT is undervalued, but my thinking that directly contradicts what the market thinks, do rather than being comfortable with my own opinion, I’m trying to see what the market sees & whether BT’s plan will get them out of this......,"
Thanks for your reply Aus,
Thanks for asking questions of the industry, & appreciation to Fleccy & NDN who have the knowledge of the telecoms industry to answer them. I hope that Fleccy & NDN are correct with their knowledge and also have skin in the game, this I must admit gives me confidence that BT will come out of all this in good health, and a recovery in the share price given time.
Thanks guys, much appreciated.
“ If I can understand what’s going on, I feel better assessing the risk & seeing the opportunities “
So would we all, in that we agree.
Fleccy - stop your nonsense
The scenario I gave was BT losing a retail contract to another provider & that provider not needing to us any BT network
That’s zero income for BT. End of, no matter how much you don’t want it to be it is & that is simply a fact
Hey Nigco - lets start this off and straight away I don’t have a low opinion of BT. I’m trying to understand what’s going on and relate it to the share price and results.
Rather than just writing it off as market manipulation or bad press, my alternative view is there are reasons why the market prices BT (in my opinion ) low.
If I can understand what’s going on, I feel better assessing the risk & seeing the opportunities
I’m not fully convinced by some of Fleccy & NDN’s rationale & think there’s a bit more to this then they describe. I’m sure they are right about the fibre rollout technology wise, but I’m less convinced it’s a done deal on the business case side.
I inherited a load of shares from my dad & have invested a fair bit of my own cash in this share too.
The industry interests me.
Based on assets and previous SP I do think BT is undervalued, but my thinking that directly contradicts what the market thinks, do rather than being comfortable with my own opinion, I’m trying to see what the market sees & whether BT’s plan will get them out of this......,
Aus. 20 years ago BT had a massive portfolio for private services, from a simple pair of unprotected wires connecting two locations within the same exchange area, up to high bandwidth international point to point service. They used lots of different manufacturers and delivery methods from twisted copper pair to Fibre. The network costs were extremely high, so were the staff costs and things like utility services including power and many buildings to maintain. Today with the exception of a few products, which are falling in volume at a high rate everything in private services are fibre derived now, and soon everything will be fibre. The portfolio is very much reduced to basically Ethernet derivatives. Staff, utilities, buildings, and most importantly network maintenance costs have greatly reduced. With a full fibre UK wide network in a few years I suspect the portfolio to shrink even more with a lot of the offering being “dark fibre” with no network cost unless some idiot digs up a cable, the other costs will reduce even more, revenue streams will grow as more and more products are offered by providers all renting capacity, some down the same price of glass, bye one get 10 or more free for BT. Service providers will come and go users will need more and more services and only a few will be left in say another 10 years. They will all then be begging BT for the best deal , not like at present where they are so many of them that BT has to go with effectively what they want to pay.
Why would BT want to get involved in all that when they have spent the last 20 years cutting costs, reducing products and services and still make around £2b profit a year after all its costs including building a Full Fibre UK Wide Network.
Fleccy, NDN & Aus,
I must say I enjoy reading you comments and thank Aus for lets say the bear argument regarding BT. It's good to hear all opinions, positive & negative. I know that Fleccy & NDN have had careers in the telecoms industry, I'm not sure about Aus?
My question to Aus is, and I mean no disrespect with this question. (I value your opinion) Why do you continue to hold BT if you have a lets say low/negative opinion of BT? I also note that you've previously said that you think that BT are undervalued at the moment.
"0 income if there’s an alternative network in that area"
Aus why would BT get zero income if there's an alternative network in the area?
You seem to forget the that BT can compete on price with any of the alternative network providers. BT may well be able to offer discounted wholesale prices to the likes of Sky and Vodafone, which will put pressure on altnet providers and BT could offer bundled services that many altnets can't.
You should present a more balanced approach and not assume that BT's business will be wiped out by new players. The real truth is, BT could wipe out the competition in months if OFCOM didn't have the altnet's backs. BT have scale and diversity, nothing will change that and i'd also argue that there's a limit to how low BT's revenue might drop. If the competition reached a certain critical mass, OFCOM would have release the regulatory reigns on BT anyway.
NDN - yes churn, that’s a good description. Exactly what I am trying to describe. I realise you put a positive spin on the business coming back & I for one hope they do.
Fundamentally in a way in which I can understand it, is my explanation for what we are seeing in BT’s financial performance.
Revenue is going down because retail business income is “churning” and being replaced with
0 income if there’s an alternative network in that area
A small percentage of that income if the new retail owner chooses to wholesale / rent BT’s network
Alternatively the retail income is lost because the retail customer no longer wants the service (home phone for instance )
I’m thinking this reflects the results we see, reduced revenue. But with small variations in profit
A continued decline of revenue, will eventually lead to less profit
BT needs to keep paying its bills. So I’m thinking best thing BT can do is find alternatives for retail business to keep revenue up. EV charging, TV, TV sport, IoT alarms, smart homes etc etc
Those are my exact thoughts. A decking revenue leads to less money to make a profit from
I’m guessing cost cutting goes some way, but again there’s always limits and notoriously difficult to actually deliver without impacting revenue again. But again, without the new income, the cyst cutting is from a smaller cake, so if revenue falls enough, cost cutting can’t keep up
What people seem to forget and the Press Narrative brushes under the carpet, is that BT have had competition for more than 30 years and various innovations have come along in an attempt to chip away at BT's business.
Telecoms providers need large scale to succeed and many of these upstart Altnet Fibre providers will never achieve the required scale, so will likely fail.
Aus, you are talking about “churn”. It mostly happens around things like BB and mobile, but also on the bigger contracts most of which are for 5 years. Company A has it, then B gets it then C gets it then D then back to A. The thing is it’s not as simple as that, there are things such as SLGs, service level agreements, a company gets offered a lower price for the same product so they move, then realise that the 5 star service they did have is now only a 3 star one they may get away with it a percentage of the time but then a situation arises and the y wish they still had the old one.
If BT is providing a closed network for a company with 750 sites comprising of say 1000 links, then they will have paid for the whole installation all the kit and routes needed, BT then has to maintain those links in there entirety for the whole contract, there is an on going cost to BT. If that network then moves to another supplier it all has to be built again probably using as much BT network as before which BT receives income for, but do not have the costs of looking after everything that is then a saving but still income.
There are a lot of service providers out there, they are all fighting for a bit of the market, they cut costs to get a contract then another comes along and under cuts them and so on. BT could well be better placed by just providing a network for them all to squabble over and not have the hassle of joining in as they don’t need to sell service direct to the end user just watch the cash come in without the never ending cost cutting by just being a network provider and nothing else. Build it and they will come, and spend lots of money doing so...
"5 years later, BT lose retail contract. If & it is if BT links are needed, BT replaced the £55m revenue with a fraction from wholesale rental"
Aus BT has had competition since the 1980's. Mercury was a startup, which parent C&W created to compete directly with BT for business customers. Mercury used Microwave point to point links to carry customer traffic to their Trunk Access Nodes, where they would then be aggregated and sent to central Distribution Nodes and directed wherever required. Mercury/C&W had their own exchanges, so offered Voice and data services. Other networks came and went and over the years, Cable TV went bust and were taken over by C&W and then sold to NTL. Energies went bust and Thus also ran into problems with both being taken over by C&W. C&W split, with the UK business re-branded to Cable & Wireless Worldwide and that was subsequently taken over by Vodafone. BT still stands and will do in 20 years from now, many of the others wont.
Vodafone's core network is ok, it consists of the old C&W network which included the old Energies and Thus networks. Vodafone have Fibre rings covering most city centre areas, but petering off as you move out from the centre's. Virgin Media consists of the old TV cable networks, so much of their coverage is within residential areas with little coverage within business areas and although Virgin might have product offerings geared toward small business, they have little aimed at big business.
For years there have been competition within defined areas, like COLT in London, but these have also been around for years so nothing new. Throughout all this, BT's massive scale and coverage has served them well, I don't see anything that will change that.
NDN - you’re like a bit. I don’t know if I can make this any simpler.
A retail contract priced at £55mln goes to BT. BT revenues £55m
5 years later, BT lose retail contract. If & it is if BT links are needed, BT replaced the £55m revenue with a fraction from wholesale rental
Hence, they still get income (maybe) but a fraction of their original retail deal
This impacts the bottom line.
I don’t know how to explain this point simpler & this is what goes on in the market, little by little, but by bit.
I know BT win contracts too, but it’s obviously not enough & I doubt many companies go back
This is why I’m hoping BT can find more retail services to sell
“ buts it’s the old C&W networks and infrastructure taking the retail contracts away from BT’s bottom line.”
But not really, all the old C&W TAN site’s that I have worked in have been reliant on BTs network to extend services to the end users or to interconnect into the BT core via 2mb-34mb systems or Ethernet or SDH. I have worked at service providers sites that have had there core delivered bu C&W but they again need BT to get to end users site’s. I know of a couple of Mobil sites that have direct access to C&W core and also BT core, via in the case of BT SDH nodes. Voda have BT Ethernet access in many exchanges for the provision of BB or other services to end users.
So how will that affect income to BT ?
In fact each connection brings extra income, charge the customer X amount, give BT Y amount for connectivity and keep the rest. The same applies to Virgin they use BT Ethernet access to provide service to locations outside there areas. They all generate income for BT without whom many services would not be possible.
Unless someone builds a full UK network to match BTs mile for mile, location to location then there will be no loss of income, just more options to sell capacity to whoever wants it.
NDN - yes I’m wrong about C&W apologies. But you know what I mean, might be called Vodafone, buts it’s the old C&W networks and infrastructure taking the retail contracts away from BT’s bottom line.
Lostsoul....... "Do do they have a failing business model, I think not. However there is at this moment a high expenditure to get the fibre in. Couple of years the benefits will be reaped from the seed currently being invested for years to come"
My thoughts exactly Lostsoul,
BT pain for now, gain later. Once Fibre is built then BT become a cash cow that will pay down its debt and pension deficit. Future rewards for its long suffering shareholders with very good dividends. Possible sale of Openreach when the share price recovers to at least 300p per share with a possible special dividend would be the icing on the cake.
Sky need 10 Meg to stream normal TV, 15 for HD. Your laptops usually have 100meg wireless cards. Your games console uses about 15 for a good connection constantly.
Gigabit circuits are now installed on fttp to the home 990 Meg at your disposal. However unless you are a 100 employee business that's data hungry you will never in your life time use that amount in a residential house in one go.
With regards to competition bt don't really have one that's ready to dig up the whole UK and put their cables down due to cost. It's always ever going to be leased in some way shape or form. That's constant revenue for bt.
Do do they have a failing business model, I think not. However there is at this moment a high expenditure to get the fibre in. Couple of years the benefits will be reaped from the seed currently being invested for years to come
"1gbt consumer broadband seems like the least necessary part of this upgrade"
Aus, we actually agree on something. An almost fully Fibre'd UK will open up opportunities around remote control and monitoring worthy of any science fiction film. 5G and FTTP will compliment each other in the fully connected future.
"I thought they only regulated BT’s, although are you saying because BT are forced to keep wholesale costs low, the market then forced virgins prices?"
That's what i'm saying. By holding down Openreach wholesale prices, OFCOM are damaging the investment case for alternative network providers. The alternative network providers are currently cherry picking locations to keep their costs down, but they will struggle to make returns while Openreach wholesale customers can undercut them. Most can manage with their FTTC service, so why would they pay more to use an altnet Fibre service? Even if the altnet tempts some over, with the hype, they could later lose the customer if they don't see any difference in the service provided
Nigeco. - when I read about high data rates to homes, I get the impression it’s less about the consumer & more about being able to deliver that data rate to other things in the same street. 1gbt consumer broadband seems like the least necessary part of this upgrade
"I'm no expert, far from it, but will Gigabit internet be needed?"
No Everyone will be moved onto Fibre, but i suspect most will only need a much lower data rate. My current download speed is around 34 Meg and we often watch streaming services across several TV's. I regularly use Sky Go, while my wife watches Netflix, so i know i don't need faster than my current service.
I've mentioned a possible use of 5G micro cells connected over FTTP, as a possibility and it isn't something I've read about so i'm not sure if its legally possible, but it gives an idea of possible uses of FTTP. The increased bandwidth that Fibre offers, opens up many commercial opportunities around remote services, with the possibility of households paid to allow companies to piggy back their Fibre connection.
Do OFCOm regulate VM prices? I thought they only regulated BT’s, although are you saying because BT are forced to keep wholesale costs low, the market then forced virgins prices? I thought that was the whole idea? Apologies yes wrong about C&W