BT share price: CEO says overhaul to turn Openreach into ‘vulnerable unit’

on Feb 26, 2016
Updated: Oct 21, 2019

BT Group Plc’s (LON:BT.A) chief executive officer, Gavin Patterson, has warned that theOpenreach overhaul, recommended by the telecoms regulator as part of an overarching review of the sector, would create unnecessary costs and turn the infrastructure division into a “vulnerable unit”.

Ofcom yesterday stopped short of demanding a full separation of Openreach from BT, instead recommending that the unit should be overhauled to ensure that it would remain independent from the main group and allow easier access to rival telecoms groups. The watchdog said it would come up with detailed proposals later this year, which may include transforming the unit into a ring-fenced, wholly-owned subsidiary of BT, with its own purpose and board members.

While BT investors cheered the outcome, relieved that the telco had avoided a split, Patterson’s comments suggest that the company’s management is not too pleased with the regulator’s decision. The CEO warned that the overhaul would force it to renegotiate property and employee contracts, adding that “it’s a lot of work, it’s going to be very expensive”.
“We shouldn’t be under any illusion about how much work is really involved in this and question whether it will result in a different outcome for customers,” Patterson said, as quoted by The Telegraph.
He also argued that, while was open to forming “a board of some form” at Openreach, that board should remain accountable to the main group.
“You can’t have an unaccountable division within a group, you would fail basic financial governance,” he added.
In today’s trading, BT shares were up 1.3 percent at 485.80p, as of 08:15 GMT. The stock has risen 2.9 percent since the start of the year and the company’s market capitalisation currently stands at £48.4 billion.
The 21 analysts offering 12 month price targets for BT have a median target of 535.00p, with a high estimate of 600.00p and a low estimate of 375.00p. As of February 20, 2016, the consensus forecast amongst 25 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 09:54 GMT, Friday, 26 February, BT Group plc share price is 486.35p.