Q2 BT Group results show that Gfast is starting to rollout
The results for Q2 ending 31st October 2017 are out from BT Group and the main headlines in terms of broadband revolve around the activities of Openreach which is carving out its own indentity.
The headline figures from Openreach are that they added 505,000 fibre connections (VDSL2/FTTP/G.fast) in the last quarter to take them to them a total of 8.6 million connections using the GEA network services across the UK which means take-up is running at 32%. On the Openreach local loop some 64,000 new broadband connections were made, so as one would expect the bulk of the 505,000 new fibre connections are existing ADSL/ADSL2+ connections upgrading.
Revenue in Openreach was up £8m compared to the same quarter 12 months ago a growth of 1% but when you consider that fibre connections with their higher revenue were up 21% in number this does look like a small change but there are negative impacts from regulation that cost £13m and commercial price cuts worth another £14m. Operating profit was down by £20m compared to 12 months ago and stood at £277m with capital expenditure at £397m up £40m.
Capital expenditure was £397m, up £40m or 11%, reflecting our ongoing investment in fibre broadband coverage and speed, and delivering a higher volume of Ethernet connections. Capital expenditure includes gross grant funding of £50m (Q2 2016/17: £34m) directly related to our activity on the BDUK programme build which was offset by the deferral of £12m of grant funding (Q2 2016/17: £21m). Under the terms of the BDUK programme we have a potential obligation to either re-invest or repay grant funding depending on factors including the level of customer take-up achieved.Openreach on cap-ex in Q2 2017 Financial Report
The base case in terms of take-up for the BDUK projects continues at 39% of total homes passed and re-investment or eventual repayment of grant funding is acknowledged as normal, along with the deferral amount being at £477m compared to £292m a year ago. The re-investment is not automatic in the BDUK process as local authorities have to drive that decision and with an increasing number opting for alternate operators in later phase projects there can be delays in announcing re-investment as decisions on the technology and premises to deliver to may need to wait on other operators.
Full fibre is the talk of the town (we wish it was not and that the talk was of multiple operators with footprints in the 1 million+ region) and the consultation we recently reported on indicating broad support for a large-scale FTTP broadband network across the UK carried very few surprises. The need for a heavier fibre future is not an if but when so it would be interesting to find out why it was only 'broad' support, were the dissenting voices just against a large Openreach FTTP future, or the concept of any large FTTP roll-out?
The combined FTTP and G.fast footprint is sitting at a reported 770,000 premises which is a big jump compared to previous figures and this looks like it is down to a large number of G.fast pods going live over the last week, since in the last few days we have started to find them popping up as ready to order as well as a few more speed tests trickling in. Our number tracking has Openreach GEA-FTTP at 372,000 premises and G.fast at 45,576 premises which is substationally down on the figures in the financial report, but our tracking does lag a little more on FTTP compared to VDSL2, so FTTP is probably more like 400,000 and with the G.fast pods having gone active it seems in the last week and we have not explicitly chased these our G.fast figure will remain low and is likely to do so as the focus of work is on ensuring the superfast figures are kept as up to date as possible. For the record our tracking of G.fast coverage is a subset of the premises where VDSL2 is available on a cabinet since distance plays a factor and we believe the same is true of the Openreach figures.
Onto BT Consumer which is still the face of the BT Group that most people consider BT, and the quarter saw the provider grow its broadband base by 22,000 additions and the Infinity product range is sitting at 5.3m million customers with some 179,000 net additions in the last quarter. This means now that 57% of BT Consumer customers are on a fibre based service. Price rises for BT Consumer customers are never popular and this may have helped the divisions revenue rise by 1% year on year but with capital expenditure increasing at 40% (up from £21m to £74m) it looks like the increased prices were used for something and the report indicates that the cap-ex change was around investment in bandwidth to reduce peak time congestion.