BT boosts bottom line with broadband bonanza

Although BT's revenues are down on last year, it saw profits jump 13% last quarter - thanks in no small part to broadband...

by James Taylor
Last Updated: 19 Aug 2013
BT hasn't had the easiest time in recent years, but it looks as though the painful changes instituted by CEO Ian Livingston are bearing fruit: the telecoms giant said today that its profits jumped 13% to £496m last quarter, ahead of expectations. The bad news was that revenues were actually down 3% on last year, thanks to stiffer competition in its core fixed line market - though with its broadband services doing pretty well, Livingston reckons the top line will be growing again by 2012/3. That may seem a long way off - but judging by its share price bounce this morning, the City seems to like what it's hearing.

BT has been forced to issue two major profit warnings in the last couple of years, thanks largely to trouble at its Global Services division (its misfiring consulting arm, which racked up massive losses by under-bidding on lots of complicated projects). But even that seems to be perking up; apparently, its order intake is up 50%.

Broadband is also proving a fruitful area. BT added another 253,000 customers through its wider network last quarter (nearly half of whom are using BT's own service), while BT Vision, its broadband TV service, passed the 500k subscriber mark. The only problem is that only 10% of these people have signed up for its much-vaunted Sky Sports offering - but Livingston insists he's playing the long game, and that the spread of HD and 3D will boost numbers in the long run. And then there's BT Infinity, its new high-speed broadband service, for which Livingston also has high hopes. So far it only has about 38,000 customers, but BT says it's adding another 4,000 or so every week. All told, Livingston reckons this should get BT's revenues growing again by the year after next.

It's certainly true that BT's financial position looks a lot stronger than it did a year ago, thanks largely to Livingston's efforts to strip out costs. This meant lots of job losses - and much less use of third-party contractors - but it has allowed BT to meet its target of freeing up £2bn in cash two years ahead of schedule. With the company also increasing its annual earnings forecast today, it's no wonder the share price is up.

That said, Livingston still has a lot of work to do. Margins are being squeezed all the time by the fierce competition in its fixed line market - and broadband is likely to prove similarly competitive. So although BT seems to be back on an even keel, perhaps we should put the champers on ice until that top line is growing again.

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