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BT bins buy-backs to fund fibre future

Created:
16 July 2008
Written by:
John Hughman

BT's Ian Livingstone has made his first splash as chief executive announcing plans to roll out a major high-speed fibre optic network across the UK. The £1.5bn rollout aims to reach 10m homes by 2012, and BT is putting its £2.5bn share buy-back programme on hold to fund the project, which will increase capital expenditure by an additional £100m a year for the next two years.

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The telecom operator has faced considerable political and consumer pressure to upgrade its broadband infrastructure. Average internet speeds in the UK - where BT has 27 per cent share of the residential broadband market - have bottlenecked at around three megabits per second, considerably lower than access speeds in Europe and the Far East, and a source of deep embarrassment for the politicians that once lauded "Broadband Britain".

Regulator Ofcom has been a prominent voice in the call for fibre, pointing out that existing speeds are constraining the UK's ability to develop lucrative next-generation internet services, such as online video. BT's upgraded network will be able to deliver speeds of between 40 and 100 megabits per second, but will only cover 40 per cent of households.

The decision to finally press ahead with the long-delayed plans could have been prompted by resurgent competition from Virgin Media - which plans to double the speed of its cable network to 100 megabits per second - and bundled broadband offerings from rivals including Sky, Carphone Warehouse and Tiscali.  

But analysts - who have repeatedly badgered BT over its fibre plans - greeted the announcement with muted enthusiasm. There was appreciation over the clarity on capital expenditure but some eyebrows were raised at the low price tag placed on the upgrade - earlier estimates had put the figure for a UK-wide deployment at more than £7bn, and there are worries that BT will need to up its expenditure to cover more households.

There are also niggling worries over the regulatory implications of the announcement - BT said that the plans are dependent on a new regulatory framework that would enable it to generate an appropriate return from its investment.

IC VIEW

FairlyPriced

This is an encouraging step towards true high-speed internet for BT, but further giant leaps may still be required to fight off competition. So, until there is further clarity on these plans, at 192p, the shares are fairly priced.

Last IC View: Fairly priced, 234p, 16 May 2008

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