BT share price: Broadband outage intensifies pressure on Openreach

BT Group Plc’s (LON:BT.A) latest broadband outage has intensified the pressure on the company’s infrastructure division and could prompt the telecoms watchdog to impose tighter regulations on the unit, according to industry experts.

The problem occurred around 14:30 GMT on Tuesday, when a faulty router caused an outage that left tens of thousands of people across the UK without broadband connection for a couple of hours. BT issued a statement that day, saying that the vast majority of affected customers were reconnected approximately two hours after the problems started. The issue was fully-resolved by around 19:00 GMT, according to reports.

The outage certainly came at an inconvenient time for the telco, given that Ofcom is yet to publish its decision on the future of Openreach, the BT subsidiary that runs the national broadband infrastructure. One of the possible options being considered by the regulator is to break-up the current model by forcing BT to spin off the unit into an independent company. Such a decision, however, would be too harsh, according to Russ Mould, a director at investment manager AJ Bell.
While Mould agreed that the timing of the outage was “particularly unfortunate” for BT, he told The Telegraph yesterday that a forced spin-off of Openreach would be a “radical and draconian” stance.
“The regulator is more likely to threaten BT with tighter regulation, and closer monitoring of performance and key operating metrics,” he said, as quoted by the newspaper. “It will do its best to foster additional competition (rather) than go for a break-up.”
Bengt Nordstrom, a telecoms analyst at Northstream, also expressed doubts that this week’s failure would prompt Ofcom to force a break-up. He added that the current discussion centred on “BT’s dominance and if they are meeting the broadband roll-out requirements in the UK”.
Nevertheless, the outage earned BT further criticism. The Telegraph cited security consultant Graham Cluley, who questioned whether a company of that size should “have such a critical single point of failure”.
In today’s trading, BT shares were up 0.9 percent at 490.30p, as of 09:30 GMT. The stock has risen just over four percent since the start of the year and the company’s market capitalisation currently stands at £49.7 billion.
The 22 analysts offering 12 month price targets for BT have a median target of 521.50p, with a high estimate of 600.00p and a low estimate of 240.00p. As of February 02, 2016, the consensus forecast amongst 24 polled investment analysts covering BT had it that investors should hold their position in the company. The same consensus estimate has been maintained since November 27, 2015, when the sentiment of investment analysts deteriorated from “outperform”.
As of 10:56 GMT, Thursday, 04 February, BT Group plc share price is 492.10p.