A damning new report from the Culture, Media and Sport Committee could spell trouble for telecoms giant BT (BT.A). Nearly a dozen MPs have called for the telecoms titan to significantly ramp up investment in Openreach - the wires and cables that connect around 20m households to the national broadband and telephone network - or sell the division if it fails to "put its house in order".
The politicians claim BT's Openreach investments almost flatlined between 2009 and 2015, as the group funnelled profits into riskier ventures such as its BT Sport television channel and securing live broadcasting rights to top-flight football. They pegged the shortfall at "hundreds of millions of pounds" and accused BT of neglecting customer service and obscuring Openreach investment plans in order to hamstring rival operators' network planning.
BT's bosses argue Openreach investments have risen 30 per cent in the past two years and will rise again this year. They claim that divesting the business would lead to less investment. Analysts have criticised the report for giving little weight to the investment risks to BT, Openreach's successful expansion of fast-broadband access to around four-fifths of UK premises - and its fulfilment of telecoms regulator Ofcom's service targets.
The report is poorly timed for BT. Ofcom is preparing to publish its final regulatory proposals on the matter and may now feel compelled to crack down on the company. It has shied away from forcing BT to divest Openreach, but has pressured management to increase the segment's autonomy and open up its infrastructure so rivals can lay their own fibre networks. It has also introduced a minimum margin between the division's wholesale and retail prices. Meanwhile, BT has vowed to invest £6bn in its broadband and mobile network, bolster headcount at Openreach and expand ultrafast broadband access to 12m premises by 2020. Further regulatory concessions could delay BT's existing investment plans.
Analysts at Jefferies bemoan BT's failure to improve its customer service, which has turned the public against it and eroded regulatory support. Broker Macquarie expects EPS of 29p in the year to 31 March (from 33p in FY2016).
