BT share price: Deutsche Bank flags more spending on broadband speeds

Comments come after government rejects telco’s voluntary offer

BT share price: Deutsche Bank flags more spending on broadband speeds

Deutsche Bank remains bearish on BT Group (LON:BT.A), arguing that the telco may have to spend nearly twice as much as it had planned on upgrading the UK’s broadband network, Proactive Investors has reported. The comments came after the government rejected the telco’s voluntary offer to improve broadband speeds, instead confirming that high-speed broadband will be delivered by a regulatory Universal Service Obligation (USO).

BT’s share price has been steady in today’s session, having added 0.74 percent to 272.15p as of 14:29 GMT. The advance is largely in line with gains in the broader UK market, with the blue-chip FTSE 100 index currently standing 0.67 percent higher at 7,575.77 points.

More spending for BT

Deutsche Bank reiterated its ‘sell’ stance on BT today, noting that industry regulator Ofcom had estimated that it would cost £1 billion, nearly twice the telco’s proposed £600 million, to upgrade speeds to 10Mbps for 1.1 million rural homes and £1.7 billion to deliver 30Mbps to 1.9 million homes. The comments followed the government’s announcement that it believed that only a regulatory USO offered sufficient certainty and the legal enforceability required to ensure high speed broadband access for the UK by the end of the decade. 

“It is difficult to say whether on a like-for-like basis a USO approach will be more negative or not for BT’s near-term cashflow until the terms of the USO and funding thereof are finalised,” the bank pointed out, as quoted by Proactive Investors. “However, the voluntary approach sought to avoid a legal minimum broadband speed which could be raised, and cost more over time.”

Cashflow estimates

The analysts further noted that upfront capital expenditure (capex) could impact the company’s near-term free cash flow expectations. Deutsche Bank also cautioned that BT may not be the designated service provider of any USO and while that would save capex, it “would cede BT share in rural areas, where the company has a de-facto monopoly, and would be a poor longer-term outcome”. 

As of 14:59 GMT, Thursday, 21 December, BT Group plc share price is 271.49p.

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