BT (LSE: BT-A) has been one of the FTSE 100‘s greatest growth stories since the financial crisis with the company’s shares rising 187% during the past five years, outperforming the index by 159%, excluding dividends.
BT has been able to achieve this staggering performance by branching out and transforming itself, from an old-fashioned telecoms provider, into a multimedia company providing pay-tv, broadband and global engineering services.
However, now BT’s peers, Vodafone (LSE: VOD) and Talktalk Telecom (LSE: TALK) in particular, have decided enough is enough, and they have decided to take action to slow down BT’s relentless growth.
Undercutting
Talktalk’s strategy to beat BT is simple: undercut the company on price. This strategy involves two prongs of attack. Firstly, the company is rolling out its own low-cost city-wide broadband network in York, a joint venture with Sky.
Secondly, Talktalk has appealed to regulators regarding BT’s wholesale cost of connecting households to fibre broadband networks. Talktalk currently pays BT £8 per house, per month for use of its fibre network, although the company believes that the cost should be lower. Talktalk has promised to pass on any savings gained from lower wholesale costs to customers.
What’s more, Talktalk has recently launched a £4 broadband contract for small firms, taking on BT, which owns 75% of the small business market. Talktalk has claimed that its offer can save small firms up to £594 per year.
Paying close attention
As Talktalk goes head to head with BT, Vodafone is watching BT closely. So far, BT and Vodafone have not gone head to head as the two companies operate within different sectors of the telecommunications market.
However, BT has recently decided to launch a mobile network, designed around the company’s extensive Wi-Fi hotspot network, which gives the provider unprecedented network coverage.
Vodafone’s management believes that customers won’t rush to buy BT’s mobile offering. Nevertheless, the group is keeping one eye on BT’s progress and plans to support Talktalk’s battle to reduce BT’s dominance over the UK’s broadband network.
Vodafone itself is trying to drive growth in the UK by ‘becoming the best’. Specifically, the company is spending heavily to improve network coverage across the UK, as well as 4G coverage. What’s more, just like Talktalk, Vodafone is trying to boost its presence within the enterprise and business market.
The bottom line
All in all, it seems as if Talktalk and Vodafone are now making it their mission to break BT’s dominance over the UK’s broadband and business markets.
Further, BT is also fighting another battle with Sky over pay-tv customers. So, with competitors chipping away at market share, BT’s growth spurt could be coming to an end.
