Br0kenTeleph0n3

Following the broadband money

What would BT do without Openreach?

with 2 comments

BT’s financial results for the year ended 31 March 2011 show just how much the UK’s largest communications company depends on Openreach, its regulated network building and operating subsidiary.

Of BT’s total revenues of £20.1bn, Openreach contributed £4.9bn or 24.6%; of BT’s gross profits or earnings before interest, taxes, depreciation and amortisation (Ebitda) of £5.9bn, Openreach contributed £2.1bn, or 36.2%.

Perhaps more surprising was that BT was able to increase Openreach’s operating profit (ie, after depreciation and amortisation) by 14% at a  time when communications regulator Ofcom is taking a hard look at BT’s cost structure, especially on wholesale broadband access.

The results show CEO Ian Livingston sweating BT’s (Openreach’s) assets. Total sales for the year fell 4%, but tight cost control boosted profit before tax by 20% to £2.1bn. Capex outside Openreach was down, but BT’s programme to boost broadband speeds with a combination of more fibre to street cabinets (FTTC) and making copper go faster helped Openreach’s capex rise £180m from £907m to almost £1.1bn.

Openreach said it has spent £600m so far on its fibre network. It is unclear if this figure is part of BT’s present £2.5bn “superfast broadband” programme, or something else. But it does say it will put in more 100Mbps fibre to homes and offices and will test a 1Gbps fibre system in 2012. It also plans to double its FTTC speeds to “up to” 80Mbps, but it is unclear what this will mean for subscribers who are stuck with copper local loops.

It is also evident that BT is not giving up copper. At a time when the rest of the world is installing optical fibre as fast as possible, BT bizarrely brags it installed 11,000 net new copper-based services. “This is the first growth in the copper line base since the formation of Openreach in 2006 and reflects customers recognising the advantages of fixed-line broadband,” it crows.

The graph below from the London Metal Exchange shows how the cash price of copper in dollars per ton has changed since 1 January 2009. Which suggests that BT’s existing copper holding is an appreciating asset. But it is surely perverse of BT to add to it at current prices when fibre has almost infinitely more capacity, is not a target for thieves and is cheaper to operate.

Copper prices

Copper prices

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Written by Br0kenTeleph0n3

2011/05/15 at 16:10

Posted in Broadband, Finance, News

Tagged with , , , , , ,

2 Responses

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  1. Ian, do you realise that many of the 11,000 new connections will probably use existing copper pairs. New build areas still need a product that fits in with battery back up and access to all telcos separately for broadband and PSTN.

    Unless you can explain how to rip out copper in a particular area to provide broadband and PSTN to every property. Would the cost of doing this be offset by the value of a length of cable?

    Presumably these 11,000 connections are spread across the whole of the UK?

    Obvious what increasing FTTC speeds for those without it means surely?

    Of course Openreach continues to install fibre into businesses, as it has for the last 20 years.

    Somerset

    2011/05/15 at 16:33

  2. BT doesn’t say where exactly the net new 11,000 copper lines are, but it does say it “lost” 300,000 the year before, and has lost others ever since 2006. This is apparently due mainly to local loop unbundling, but there is also a growing number of customers who use mobile only.

    iangrant52

    2011/05/16 at 07:51


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