The Risks Of Investing In BT Group Plc

Today I am highlighting what you need to know before investing in BT Group (LSE: BT-A) (NYSE: BT.US).

Sky bites back

BT played a masterstroke when it rolled out its BT Sport channels last year by offering free subscription to its broadband customers, a move that has proved a huge success. Although introduced just last August, more than five million customers now receive the firm’s sports services, three million of which take a subscription directly through BT.

In response, rival sports empire British Sky Broadcasting announced the launch of its Sky Sports 5 channel from next month, dedicated to European football including UEFA Champions League and Spanish La Liga top flight football. And in a bid to undercut BT, Sky announced that it will offer unlimited broadband to its Sky Sports customers completely free for two years.

Sports suite to remain capital intensive

The success of such price initiatives has been so great that BT announced in April that it plans to continue offering its sports services free to rooneyits broadband users for another 12 months. The move comes as no surprise given that revenues in its BT Consumer division shot a record 9% higher during January-March to £1.1bn on the back of the strong uptake of its sports packages.

But in a bid to retain this momentum, concerns abound that BT will be dragged into an intensifying bidding war by its broadcasting rival to keep customers interested, a situation which could have a significant impact upon earnings.

BT famously forked out nearly £900m last November to secure UEFA Champions League and Europa League football for three seasons from 2015, and with the next auction for the highly-prestigious FA Premier League broadcasting rights to be held next year, the telecoms giant is likely to have to pay a king’s ransom to wrestle the rights from Sky. And that does not take into account its desire to boost its portfolio of other blue-chip events such as Aviva Premiership rugby union.

Pensions palava

BT’s sizeable pension deficit has long been a concern for investors, who believe that vast amounts of capital will be required to keep the deficit under control.

Indeed, broker Macquarie has put the firm’s pension deficit at an eye-watering £8.1bn, according to the Financial Times. As a result the telecoms play will have to BT make additional payments of between £700m and £770m per annum — it already shells out around £325m each year to service its pension scheme.

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Royston Wild has no position in any shares mentioned. The Motley Fool has recommended shares in BSkyB.