BT (LSE: BT-A) has been declining steadily for the past few months. But this fall just got accelerated. The telecom and broadband services provider is the biggest FTSE 100 faller in today’s trading, at least so far. The BT share price was down by 8% in early trading, though its losses have subsided to 5% as I write.
What’s going on here?
Competition heats up
According to media reports, competition is heating up for BT, as the broadcaster and telecom company Sky plans to tie up with Virgin Media O2’s plan to roll out full-fibre broadband. Fibre optic cables are hardy and allow for faster broadband speeds. Sky is the biggest client for BT’s Openreach, which provides these very services. According to analysts at the investment bank UBS, loss of this business could cost BT around £600m.
What this means for BT
On the face of it, this could be a genuine cause of concern for BT, which owns much of the fibre broadband network in the UK. Also, Openreach is a big money spinner for the company. For the year ending 31 March 2021, it contributed to almost 40% of the company’s adjusted earnings before interest, taxes, depreciation, and amortisation, more commonly known as simply EBITDA. This is despite the fact that it is only the third-largest contributor to the company’s revenues, accounting for a shade under 25%.
Going by the segment’s above-average margins, I think competition was to be expected at some point. This is disappointing news for BT shareholders, though, myself included. The company had some of the biggest dividend yields before the pandemic. And even though its share price was weak even then, the high dividends more than made up for it.
When Covid-19 struck, it stopped paying dividends and has not restarted yet. And if its earnings are about to be affected because of the latest partnership between Sky and Virgin Media O2, I think we may just be stuck with underwhelming dividend levels for some more time at least.
There’s more to the story
Yet, I am not willing to give up on the BT stock, not yet. And here’s why. This news follows BT’s plans to cut broad prices to its wholesale clients, confirming plans that were first initiated in July. Lower prices can make it more competitive compared to its peers, like Virgin Media. As a result BT could still come out ahead.
What I’d do about the BT stock
Also, BT is said to be in talks with the sports streaming service, DAZN, to buy-out BT Sports. This could allow cash infusion into the company and also allow it to focus on its core businesses of telecom networks and fibre broadband. As a side note, interestingly, Sky has been a big competitor for the company in the sports segment. But this could be a thing of the past, if all goes well.
I bought BT shares a while ago, and for these reasons, I maintain that will continue holding on to them.
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Manika Premsingh owns shares of BT GROUP PLC ORD 5P. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.