RE: Notes18 Sep 2023 23:55
2/2
My main worry on BT is a different one - the altnets, especially CityFibre. If you look up City Fibre’s f/statements you will see that at end 2022 they had “passed” 2.5m households, having done 1m in that year and aim to have done 8m households by 2026. They had about 200,000 customers hooked up to their fibre. They are backed by deep pocketed investors - Goldman, Gulf sovereign funds etc.
BT has 15m customers and says its network can connect to 32m premises.
The particular problem I have is that CityFibre directly employs less than 2,000 people and BT (for its UK broadband operations) some 75,000. Both use contractors (not in the numbers just quoted), mainly for laying the new fibre, but once build is complete most contractors go so do not come into the equation. Staff costs are a significant part of the cost base of both companies. I cannot see how BT can easily compete with CityFibre (that has the potential to take half their customers - and the best ones) and so they will have to slash jobs and costs. BT has already said up to 55,000 jobs (including contractors) will go by 2030. The CWU has acknowledged that jobs will have to go but they will inevitably slow down the process and fight for the current arrangements in place since the 1984 privatisation (VR = 2 years!!, no compulsory redundancies).
I suspect cost and staff reduction needs to be accelerated and I don’t know if Kirkby, the new CEO will be up to the task. I think BT wore down the previous CEO, Jansen, although he achieved quite a bit.
It is all very much the same as RM - both are at a crossroads. The crunch point is likely to come around 2026.
I have kept out of BT as I don’t have a clear view on it. The share price is low (and has been much higher quite recently) and builds in a lot of the risks which anyway are probably a little way off coming to fruition, even if they do. Also the 7.7p dividend only costs around £750m a year - not a big amount in the context of BT’s numbers so probably that is fairly safe. If the share price goes low enough there could be a bid as there have been rumours. I suspect there is not too much downside at the current share price and it could recover quite well with a bit of good news.
However, the longer term fundamentals look rather uncertain to me, particularly if CityFibre starts to get traction. With IDS at least the overall business is backstopped by GLS.
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