Openreach reports 26% fibre take-up in latest BT Group results
The Ofcom Digital Market Review has not lead to any changes yet, so the financials of Openreach are still part of the BT Group where in second quarter to end of September 2016 Openreach was the largest generator of free cash flow in the group.
The GEA-FTTC and GEA-FTTP products are growing with an extra 300,000 premises passed during the last quarter by Openreach (around 1% of the UK) and the net additions for fibre customers was 440,000 connections, and once combined with the existing connections gives a take-up rate of 26%. Interestingly while one would expect profits to be rising with such large increases in actual connections, profit dipped by £20m to £297m, due to the negative impact of regulatory price reductions amounting to around £60m. Cap-ex was by by £9m to £357m compared to the same quarter last year.
Capital expenditure was £357m, up £9m or 3%. This was after gross grant funding of £34m (Q2 2015/16: £87m) directly related to our activity on the Broadband Delivery UK (BDUK) programme build in the quarter. This was offset by the deferral of £21m of the total grant funding (Q2 15/16: £26m). We continue to expect gross capital expenditure in 2016/17 to be higher than in the previous year."Extract from results on Openreach Capital Expenditure
The base case for take-up used in the gain share calculations is remaining at 33%, and means a total of £292m has been deferred. A quick word on the 500,000 ultrafast connections delivered by April 2017 mentioned in the results, this does include the existing GEA-FTTP footprint, which is growing in cabinet sized chunks in Wales and Herefordshire, but we are increasingly finding in-fill delivery in North Yorkshire to address lines where a VDSL2 cabinet gave no speed uplift above 10 Mbps due to distance from the cabinet.
BT Consumer (or as many still refer to them BT Retail) had a 36% increase in profits to £200m reflecting the increased ARPU which is attributed to the higher take-up of fibre broadband, BT Sport and BT Mobile revenues. The consumer arm grew by 76,000 broadband connections thus making the largest retailer of broadband in the UK even bigger and accounted for 216,000 fibre based product additions (49% of Openreach total). The call centres for customer calls continue to move back to the UK with the aim of 90% of calls being answered in the UK by end of March 2017 and an extra 1,000 UK based customer service agents. There results include a warning that these extra staff will 'impact costs in the second half of the year', and while no-one enjoys the price rises that have been seen in line rental, costs of improved support and other things like the improved voice fault SLA (reduced by a day) have to be paid somewhere.
Obviously the countdown to an absolute final decision by Ofcom on the future of Openreach in the BT Group is getting ever closer to zero and the BT Group remains firm in holding to the position that its proposals can deliver the benefits Ofcom wants without a messy divorce.
"On 4 October 2016, we and other stakeholders submitted responses to Ofcom's proposals for strengthening Openreach’s strategic and operational independence. We remain of the view that our own proposals for significant governance change provide every benefit that Ofcom is seeking while avoiding extensive, disproportionate costs. We will continue to engage with Ofcom over the coming months.
The current charge controls set by Ofcom for the fixed access markets will expire on 31 March 2017. Ofcom is currently undertaking a review of these markets, but does not expect this to be complete by that date. In order to provide certainty to our customers and the wider industry, on 4 August 2016 we provided Ofcom with a commitment to maintain a cap on the relevant price baskets of CPI-CPI until 31 December 2017, or the conclusion of Ofcom's review if earlier."BT Group on Ofcom Digital Market Review
While we know the Leave/Remain EU vote earlier in 2016 was a very different matter and no matter which way you voted the mess now is disappointing. We sincerely hope that no matter what Ofcom decides with the Digital Market Review that the path ahead has been explored much than is the case with Brexit, where it appears no plans for how to handle a leave vote were even explored and promises were worth less than the posters they were printed on. Or put bluntly, Ofcom needs to ensure that if Openreach remains in the BT Group that investment and service levels are stepped up a gear or alternatively that if Openreach is split that the independent group will have sufficient bodies willing to invest billions in the long term to deliver the FTTP rich roll-out that those saying broadband in the UK is totally broken needs stop sweating the copper and deliver pure fibre to all in as short a time frame as possible.