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* Scraps dividend until 2021/22 to weather coronavirus
* Move strengthens balance sheet for fibre investment
* Shares fall to 11 year low as new competitor looms
(Adds further comments, reaction, updates shares)
By Kate Holton and Paul Sandle
LONDON, May 7 (Reuters) - Britain's biggest telecoms group
BT suspended its dividend and said it would spend
billions more on faster fibre broadband connections, as it
prepares to meet the challenge posed by the merger of two of its
biggest rivals.
Shares in the former monopoly fell as much as 12% to an
11-year low of 101.1 pence on Thursday, as investors reacted to
losing their payout and the potential rise in competition.
BT said the saving from suspending its dividend until
2021/22 would see it through the expected financial crash caused
by the coronavirus pandemic, which is leading to lower revenue
from sports customers, reduced business activity and more
cautious spending from multinational customers.
It will also help fund a 12 billion pound ($15 billion) plan
to upgrade its legacy copper network to full fibre. If the
conditions are right, BT said it could reach 20 million premises
by the mid to late 2020s, 5 million more than it had targeted.
On the day rivals Telefonica and Liberty Global
announced plans to merger their British units to build
a stronger challenger, BT also set out plans for a new five-year
programme to modernise the business.
Chief Executive Philip Jansen said the coronavirus pandemic,
which has seen a surge in the use of mobile phones and data, had
brought BT's national leadership in telecoms into the sharpest
focus in its history, and while upgrading the network had been
important before, it was now "a matter of extreme urgency".
Therefore, the dividend - one of the biggest on the London
stock exchange - had to be pulled.
"This was a tough decision, but although hard on
shareholders, a necessary one so that we can allocate capital
for value-enhancing investments," he told reporters.
"It will also allow us to manage confidently through the
coronavirus crisis."
He said the impact of the pandemic would only become clearer
as the economic consequences unfolded over the next 12 months.
"Due to COVID-19, BT is not providing guidance for 2020/21,
at this time," he added, referring to the respiratory disease
caused by the new coronavirus.
BT's shares, which were yielding 13.5% based on the 15.4
pence dividend it had planned to pay, were last trading down 8%
at 105 pence. They have fallen more than 40% so far this year.
Suspending the dividend would save BT 3.3 billion pounds,
broker AJ Bell said.
BT, which has cut its dividend twice before, is the latest
in a list of companies to scale back payouts to weather the
coronavirus crisis, including Shell, the FTSE's biggest payer.
SENSIBLE MOVE
Jansen said the proposed merger between Liberty's Virgin
Media and Telefonica's O2 underlined the value of combining
mobile and fixed services in a single package, a journey BT
started by buying mobile network EE four years ago.
"Personally, I think the industry needs consolidation so
it's a sensible move," he said. "It follows our strategy."
He said BT was focused on its own network upgrade and on
talks with the government and regulator Ofcom about the
conditions it needed to go-ahead.
"We are confident of getting the regulatory and policy
enablers to support our investment," Jansen said. "Clearly in
this environment the political and regulatory will to encourage
investment is very, very high."
Analysts at Jefferies said scrapping the dividend was
unexpected - the market had expected a 50% cut - but had to be
offset against the new fibre target and cost cutting programme.
They said the debate was now whether investors shared BT's
confidence the fibre regulatory negotiations would play out
favourably, or whether the company had committed itself too
early to a plan when the terms had not been finalised.
BT said the efficiency programme would cost 1.3 billion
pounds and deliver annualised benefits of 2 billion pounds by
March 2025 as it switches off legacy programmes and deploys new
technologies.
It expects to resume the dividend at 7.7 pence per share.
The company's adjusted revenues for 2019/20 fell 3% to 22.8
billion pounds and core earnings dropped 3% to 7.9 billion
pounds, both meeting market expectations.
($1 = 0.8068 pounds)
(Reporting by Kate Holton and Paul Sandle; editing by Guy
Faulconbridge and Mark Potter)
