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BT financials show Openreach has a 24% GEA product penetration rate
Thursday 28 July 2016 10:32:53 by Andrew Ferguson

The quarters results to the end of June 2016 have been published by BT and for those comparing with previous quarters results they need to remember that the impact of the EE customer base has to be factored in.

"Fibre broadband is available to well over 25m premises and take-up remains strong. At a retail level, we performed well achieving a 79% share of broadband net adds in the quarter. We were pleased to renew our FA Cup rights during the quarter and we look forward to showing more games from the Premier League at a much better time slot, starting in two weeks. Our customers can also look forward to all the exclusive live action from the UEFA Champions League and UEFA Europa League once again this year.

Our investment plans remain central to our future and so we will be rolling out further fibre in the coming months, as well as 4G through the Emergency Services Network contract. Our aim is to make these services as universally available as we can, whilst also deploying a new generation of ultrafast broadband. Such investment requires regulatory clarity, particularly in these uncertain times.

Having listened to Ofcom and industry, we have set out our proposals for greater independence and transparency for Openreach. Our proposals can form the basis for a fair, proportionate and sustainable regulatory settlement and we believe they can also enable Ofcom to bring its Digital Communications Review to a speedier conclusion. We will continue to engage with Ofcom over the coming months."

Gavin Patterson, Chief Executive

On the subject of Openreach once the consultation period of the Ofcom proposals for dealing with Openreach are over the regulator will make its final decision and the impression given by the head of Ofcom Sharon White is that it is more likely to impose its view on what needs to be done, rather than accept the BT Group proposals. What impact any changes have will depend a lot on the way the other broadband operators utilise the changes, if business continues as usual then probably no real change to investment plans, and with TalkTalk leading the running of an active campaign to create a ground swell of calls for a full sell-off it does not look as if the major competitors are ready to embrace the proposed options of more influence on Openreach and the PIA v2 product.

Openreach saw a further growth in the number of broadband connections, up 95,000 in the last quarter (compares to 149,000 in the same quarter a year ago), but crucially the number of net fibre (GEA-FTTC or GEA-FTTP) additions was 333,000 showing that the migration of exchange based services to the GEA range continues. Some 6.2 million premises are now on a GEA service which is 24% of the premises passed.

"Capital expenditure was £337m, down £65m or 16%. This was after gross grant funding of £39m (Q1 2015/16: £99m) directly related to our activity on the Broadband Delivery UK (BDUK) programme build in the quarter. This was offset by the deferral of £12m of the total grant funding (Q1 15/16: £100m). The funding deferral is a non-cash item in the quarter. We continue to expect gross capital expenditure in 2016/17 to be higher than in the previous year."

Openreach capital expenditure

One result of regulation price changes was a £50m reduction in revenue, which the 33% growth in fibre broadband revenue mainly offset. In terms of performance there are some 60 metrics for performance mandated by Ofcom and the results state Openreach was ahead of the target for all of them and the annoying matter of engineers missing appointments has been reduced by a third in the quarter. On the BDUK projects the base case assumption for take-up remains at 33% and on the commercial investment in the ultrafast arena the started target is still 10 million and two million FTTP premises passed by the end of 2020. For the deployment we an analysis of the number of cabinets needed back in June 2016 and we have now plotted the two scenarios for where BT may deliver 10 million premises passed with at speeds of 100 Mbps and faster.

BT Consumer added 79,000 new retail customers in the quarter, a massive 79% of the total seen by Openreach and also added the lions share of the fibre additions at 181,000 connections. BT Consumer now has 47% of its customers on a fibre based product. One interesting claim is that the new BT Smart Hub is twice as fast over Wi-Fi compared to the Sky Q Hub when using them two rooms away - and while we presume this is actual testing rather than a theoretical result reports on our forums are a little more mixed but difficult to adjudicate as very little chatter about Sky Q Wi-Fi performance. The venture into the TV sector continues for BT Consumer where it now has some 1.6 million BT TV customers adding 59,000 in the last quarter.

The take-up rates for fibre once combined with Virgin Media means a total penetration rate of 37.7% for the UK and while there are a long tail of other fibre based providers our recent integration of their availability data into the UK superfast figures suggests the additional impact in terms of penetration may be worth another 0.2%. When we compare this reported figure of 37.7%-37.9% with the proportion of speed tests we are seeing 36 to 40% of tests at superfast speeds in June 2016. There is another 2 to 4% of tests that appear to be on a NGA based infrastructure but getting sub superfast speeds and so while the overall figure is higher than reported penetration the difference is easily explained by people doing speed tests to see if their newly upgraded service is performing as per the sales estimate.


Posted by TheEulerID 9 months ago
That OR turnover is flat rather gives the lie to the idea that some people have that a growth in fibre revenues will justify a massive increase in capex. Last year was the first in four years where there was any growth in turnover (and that was a miserable 2%). Any growth in private circuit revenue gets wiped out by regulatory price changes & mandated efficiency savings.
Should Ofcom decide to regulate GEA wholesale prices, then turnover could even be cut despite growth. TalkTalk want the GEA wholesale price halved.
Posted by JNeuhoff 9 months ago
@TheEulerID: Why is that a worry to you if Ofcom decides to regulate GEA wholesale prices, or if there is a flat turnover? Who cares?
Posted by jumpmum 9 months ago
All the present fuss about splitting off Openreach is based on the assumption that they will be able to invest more. If revenue stays flat or decreases however much they invest then the whole investment case is hot air!
Talktalk and Sky care very much about wholesale GEA prices as this immediately boosts their profits and decreases the ability of a competitor ( BT or other fibre access player) to compete ( especially if Sky/TT want to rollout further Fibre infrastructure.
Posted by JNeuhoff 9 months ago
@jumpmum: So a lose-lose situation then?

Anyway, it's a bit odd here how TheEulerID is so worried about Openreach's flat turnover even though its GEA FTTC/FTTP products seem to be doing just fine in the marketplace.
Posted by Blackmamba 9 months ago
Hi Broadband Watchers.
With Openreach providing 25-30k extra port to the market each week they must be speeding vast sums it,s up to the ISP,s to get their customer to take them up.
If this slows Openreach will start to cut back on investment this can happen very quickly as most exchanges have been covered see PDF Openreach coverage you can see this from the 90% coverage at 24 meg.
Posted by fastman 9 months ago
Jneuhoff not sure how you are able to dmake any comment on how theGEA FTTC/FTTP products seem to be doing just fine in the marketplace.

its very important to an LLU provider as it needs the GEA to offer FTTC to its LLU Customer base and that costs its money so they neither a Cheaper GEA (to main margine) or they leave LLUI customer on Copper -- which might not be good fro retention so the "noise" is all around margin and stuff
Posted by TheEulerID 9 months ago

I do has a financial interest (about 5,000 BT shares), but it's not really that relevant. The issue is that Openreach has a turnover of about £5bn a year, and this has been flat for the past five years. That's despite around £500m (roughly) annual new revenue from the GEA-FTTC product.

Given that many people seem to be expecting that a separated OR will make a massive increase on capex, just where will the extra revenue come from to pay for it?
Posted by TheEulerID 9 months ago
have not has of course...
Posted by JNeuhoff 9 months ago
@TheEulerID: Having achieved a 24% GEA product penetration is applaudable. You wouldn't expect Openreach to have a significant increase of turnover or revenue, there are only so many customers in the UK. Regardless of whether you separate Openreach or not, access line technologies will gradually change.

And the question is: Does it even make sense to have duplicate infrastructures as some proponents of a separate Openreach seem to believe (e.e. in the form of infrastructure competition)?
Posted by WWWombat 9 months ago
Ofcom believes it does make sense to have infrastructure competition ... and evidence from other countries is that this can spur radical investment from existing telcos to help "protect" their current market.

The problem in this country is that BT can't choose to take the kind of radical steps that NTT did (in Japan) because they will continue to be forced to share access (VULA) over anything they install.
Posted by WWWombat 9 months ago
If Ofcom truly want to open up /fibre/ infrastructure competition, then open up duct/pole access, and close VULA access to BT's FTTP.

Watch BT leap into action to rebuild a monopoly. Watch VM spurred into action to try to keep up. Watch Sky & TalkTalk be forced to invest in their own infrastructure or die.
Posted by WWWombat 9 months ago
Or don't watch it. Because Ofcom will never take that step.
Posted by JNeuhoff 9 months ago
@WWWombat: Isn't BT already trialling the poles & duct access for other broadband providers? see e.g.
Posted by godsell4 9 months ago
@JNeuhoff wrote "Does it even make sense to have duplicate infrastructures as some proponents of a separate Openreach seem to believe"

There are still large parts of the country which are Market A, until that changes then answer is no it does not make sense unless there is at least 2 or 3 real options that most of the country can choose from. So unless Sky, Virgin, etc commit to a national network, it will not help.
Posted by TheEulerID 9 months ago

Given that if OR is to be expected to spend a lot more on capex then there has to be an increase in revenue (or a reduction in costs) or the whole thing ends in tears as there's no payback on the increased investment. That there is a barely discernible increase in turnover from a 24% take-up of GEA products tells us immediately there is little prospect of significant and increase. It's down to the way Ofcom regulate pricing of network infrastructure & limits sources of revenue (OR cannot sell upstream products).
Posted by JNeuhoff 9 months ago
@TheEulerID: Steve, that's all good. But Openreach has to spend on capex otherwise it won't be able to compete, or even to keep its customers in the long term, especially when Ofcom manages to improve infrastructure competition. Virgin is already increasing its network coverage, so are Hyperoptic and a number of other companies. In view of these pressures, BT has done well so far.
Posted by TheEulerID 9 months ago
Of course OR has to invest in the network, but it has to be done in a commercial manner and that manifestly does not include spending disproportionate sums in expensive, rural areas. The serious consumer market network competition is VM, and that means all the major ISPs will want investment prioritised in urban areas to reach the largest number of customers. It alxo means doing it cost-effectively.
Posted by fastman 9 months ago
jnueoff -- Virgin project lighting is all about pushing out their current footprint in already vigin areas such as new build or areas built post the original cable deployment -- ~hyperopic primarily target city apartment blocks -- neither of which wo;; come any where near your part of the world
Posted by JNeuhoff 9 months ago
@TheEulerID: Agreed. All I am saying is that BT wasn't doing too bad with its FTTC/FTTP GEA products, despite the flat turnover. The only worry would perhaps be the fact that its share value has been in a downward trend during the past 9 months or so.
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