BT reported to be in talks to sell off Openreach to fund full-fibre roll-out

Just days after reporting a tough end to its financial year and with the promise of more challenges to come, BT has bullishly announced a £12bn build programme to extend its fibre-to-the-premises (FTTP) network and 5G footprint, and it would appear the process has begun to fund this by selling its Openreach business line.

According to reports in the Financial Times, BT is in talks to sell the national broadband provisioning division to infrastructure investors to not only part-fund its infrastructure plans, but also to boost its currently low share price by partly paying off existing debt and liabilities.

The FT report speculates that the sale of Openreach – legally separated from BT but its most profitable division – could raise as much as £20bn. The FT noted that potential buyers, including Australian bank Macquarie and a sovereign wealth fund, have held talks with BT in the past three weeks. Neither BT nor Macquarie has commented on the reports.

In its results for the fiscal year ended 31 March 2020, BT reported revenue of almost £23bn, down 2% year on year, mainly reflecting the impact of regulation, declines in legacy products, strategic reductions in low-margin business and divestments, said the company.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was £7.9bn, down 3% on the previous fiscal year due to lower revenue and investment in customer experience, partly offset by cost savings from transformation programmes. Reported profit before tax was £2.35bn, marginally down year on year and including charges of £95m as a result of Covid-19.

BT’s net cash inflow from operating activities totalled £6.3bn, up 47% due to lower pension contributions and one-off cash flows.

On the assumption that it could obtain the required critical enablers, BT said it had ended the year on target to roll out FTTP to 20 million premises by the mid- to late 2020s, including what the company said will be a significant build in rural areas. These areas have been traditionally under-served by fibre in the UK and the government has spent 2020 accelerating full fibre roll-out.

At present, BT’s FTTP network passes 2.6 million premises. After passing 1.3 million premises in 2019 through Openreach, BT was aiming at more than two million in 2020/21, and envisages a maximum build rate of three million premises a year.

BT chief executive Philip Jansen described the fibre expansion plan as the UK’s largest infrastructure investment in a generation. BT predicted that its FTTP investment should deliver pre-tax nominal returns of between 10% and 12%, adding that it is based on a regulatory framework consistent with the preferred policy and direction of UK regulator Ofcom, and continued support for infrastructure investment and competition.

As the speculation around its ownership grew, Openreach revealed the next steps in its ongoing programme to help upgrade the UK’s old analogue phone network to a digital, all-IP world. The company said that in more than 100 locations across the country, covering about 1.2 million premises, it was planning to stop selling legacy analogue services and instead focus on providing people with full-fibre connections.

The company said its target was to build full-fibre or FTTP broadband to 4.5 million homes and businesses by the end of March 2021 and makie full-fibre available to more than 75% of homes in these locations by June 2021.

Openreach said its plans built on trials in 2019 in Mildenhall and Salisbury to develop and test the ways to upgrade customers onto new digital products. It added that made no sense, operationally or commercially, to keep the old and new networks running side by side. In June 2020, it intends to give 12 months’ notice that it will no longer sell copper-based products in 118 exchange areas across the UK.