The last month hasn’t been the greatest time for the BT (LSE:BT.A) share price. The stock is down nearly 15% despite no new earnings reports or other major announcements by management. So, is this just a case of market volatility? Or is there something else going on? Let’s take a closer look.
The falling BT share price
The last time I looked at BT, I was left quite optimistic about the future of its share price. The group’s third-quarter results showed impressive progress in its 5G and fibre-to-the-premises (FTTP) rollout. Some 6.4 million customers are now leveraging the power of the next-generation telecommunication network. Meanwhile, 6.5 million homes are enjoying superfast internet (mine included), with the firm seemingly on track to hit its 25 million homes target by 2026.
This is obviously good news for shareholders. But since then, not much has really happened in terms of official announcements beyond the negotiations of a BT Sports joint venture with Discovery Inc. So, why is the BT share price currently on a downward trajectory?
Fears of rising competition
While BT may be ramping up its activities, it’s not the only one. Last year two telecommunication giants, Liberty Global and Telefónica, agreed to merge. These companies are the owners of the more commonly known brands, Virgin Media and O2. And recently, the CEO of the new business, Lutz Schüler, said that BT “better watch out, because every day we are trying to challenge them”.
This message seems to have reminded investors that BT is not the only player in the field. So, seeing the the share price stumble as a chief competitor fires shots across the bows is hardly surprising. But is there reason to be worried?
Maybe. As I just said, BT is aiming to equip 25 million homes with fibre by 2026. Virgin Media O2 is looking to do the same with 15.5 million homes by 2028. But the group is also in active discussions with private investors to launch a new joint venture that would boost this figure by another seven million before the end of 2027.
Needless to say, the level of competition is heating up. And BT may start struggling to hit its target in the face of rival expansion, let alone retain its existing market share once the standard 12-month customer contracts expire. After all, more options for consumers undercut pricing power. And many current BT customers may decide to switch to a cheaper alternative in the future.
Time to buy?
The threat of rising competition is nothing new for BT. So, I see the recent tumble as a potential over-reaction by investors. Having said that, my primary concern surrounding this business is the level of debt that continues to be a problem. Therefore, even if this is a buying opportunity, it’s not one that I’m interested in for my portfolio.