BT's profits rose in the third quarter and its key competitors all depend on its infrastructure and services.
BT Group (LSE: BT-A) announced a third-quarter rise in profits of 48% today, despite a 5% fall in revenue. The company reported a £65m rise in free cash flow over the quarter and a reduction in net debt of £938m over the last nine months.
Earnings per share were up 40% to 6.3p over the last quarter and BT expects to hit its 2013 EBITDA target of £6bn a year early. The company's shares boast an attractive 4% dividend yield and a modest price-to-earnings (P/E) ratio of around 10.
Over the last quarter, 56% of new broadband sign-ups chose BT, taking its broadband customer base to 6m.
BT is like an iceberg -- mostly invisible
What you may not realise about BT is just how much of its business is with other companies. BT's Global Services division reported new orders worth £1.6bn in the third quarter. New customers in the quarter included J Sainsbury (LSE: SBRY), Standard Life (LSE: SL) and Deutsche Post DHL, while the company is expanding into Asia Pacific and Latin America.
On the consumer side, BT's Openreach division manages the integration of competing telephone and internet service providers into BT's network. ISPs pay Openreach to install their equipment in BT's exchanges, and larger ISPs such as TalkTalk (LSE: TALK) and Sky (LSE: BSY), which offer their customers line rental, pay Openreach to setup and maintain this service.
New deals with Sky and Virgin Media
It doesn't stop there, either. BT Wholesale provides telephone and broadband services to some of its competitors for them to resell. Sky's current broadband service is provided by BT and the fibre-based broadband service it announced this week will also be provided by BT.
Similarly, today's results included the confirmation of a three-year contract extension with Virgin Media (LSE: VMED) to provide managed telephone services to its five million customers.
Faster, faster
BT also used these results to announce that it will double the speeds available to BT Infinity broadband customers in the spring. In most cases, this means speeds will rise from 40MBPS to 80MBPS, with a select few customers who have fibre directly to their premises seeing speeds of up to 330MBPS.
As safe as houses?
BT has a lot to offer investors, with solid earnings, manageable debt, a solid dividend and a modest P/E.
It can grow through customer acquisition and through providing the same services to its competitors -- what's not to like?
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