BT Group's Pact with Vodafone

BT Group Plc (BT) announced that it will transfer its consumer and small business broadband and voice customers to Vodafone Group Plc (VOD) and will also provide wholesale network services to Vodafone over a seven-year period.

BT Group’s aim is to become the leading provider of networked IT services to mid and large-sized businesses and the public sector in general in Ireland. Vodafone will become the number-two player in the fixed broadband market and enjoy a 15% market share of the fixed broadband market. The value of the gross assets that are the subject of this transaction was 4.8 million euros at the end of March 2009.

In all its business segments, BT Group has been transforming itself from being a traditional telecom operator to a innovative provider of telecom solutions, and it is now taking advantage of future growth prospects, as it moves away from traditional businesses and into what it calls “New-Wave” businesses, such as broadband, Voice over Internet Protocol [VoIP], Wireless Internet Access, Networked IT services and IPTV. We believe BT Group’s New-Wave businesses are the drivers behind any growth the company will experience in the coming years, and BT Group understands that it has to constantly evolve with technology in order to stay ahead in the telecommunications business.

BT Group is an incumbent phone company providing fixed-line and data services to the United Kingdom. It owns or has stakes in operations in North America, the Asia / Pacific region, and Western Europe. BT Retail is the largest communications service provider by market share to consumers and businesses in the United Kingdom. It supplies a wide range of communication products, including voice, data, Internet, and multimedia services. The BT Wholesale segment provides network services and solutions within the United Kingdom, including its Asymmetric Digital Subscriber Line [ADSL] and Integrated Services Digital Network [ISDN] to BT Retail and BT Global Services, as well as to other communication companies, fixed and mobile network operators, and service providers.

Openreach was established in January of 2006 in response to OFCOM (UK Office of Communications) strategic review of the communications industry in the UK, and operates the physical assets of the local access and backhaul networks and provides the services which use those networks to communications providers, both internally and externally, and was spun out of BT Wholesale to become a completely independent entity from BT, although it remains wholly-owned by the BT Group. BT Global Services is BT Group’s managed services and solutions arm, serving multi-site organizations.

We continue to maintain our Hold rating on BT Group.

Disclosure: No positions

Comments

[Ray Winter:]

By transferring its broadband sales activities to Vodafone it is becoming increasingly clear that BT has given up on becoming a major player in the future telecoms market.

Interestingly BT's current UK network contains too much aluminium cabling (BT moved from copper to aluminium cabling as a cost-cutting exercise in the 1980's). Aluminium does not support two-way flows of heavy data traffic, hence their need to upgrade their network, especially in the less populace areas of the UK. Unfortunately for BT, competition in these areas is strong as there are many UK companies now offering Wimax / WiFi broadband networks in these areas.

More importantly these new wireless operators have far less non-productive personnel and 'baggage' than exists within BT, so their pricing plans are highly competitive. Indeed, BT has teamed-up with many of these operators to promote their 'Openreach' service but consumers are generally not happy with BT's support services and BT frequently find themselves in the top ten of being 'unhelpful' in customer surveys.

However, BT remain a force to be reckoned with as many of their customers suffer from inertia and are not pro-active in searching for better networks and contracts. This is lucky for BT but as family budgets continue to come under pressure, this will surely change. BT may continue to remain strong with large corporations but Cable & Wireless, Colt and CPW's Talk-Talk are targeting the same customers and with some success.

BT will need to get far more 'lean and mean' to control this sector.

Jul 24 06:18 AM