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Why It Could Be Time To Sell BT Group plc

As the UK’s premier telecoms company, BT (LSE: BT-A) (NYSE: BT.US) is one of the most defensive companies around. However, BT and the telecommunications industry are changing and the company risks being left behind. With this in mind, after recent gains it could be time to sell BT.

Changing landscape

Over the past few years, BT has started to feel the effects of increasing competition in the UK telecoms market. Competitors such as Talktalk, Sky, Virgin and even Vodafone have all started to eat away at BT’s dominance over the market, eroding BT’s revenue by 13% since 2009.

To try and return to growth, BT has branched out into other sectors such as pay-tv, and recently mobile, with some success. But even in these markets competition is increasing and BT no longer has a size advantage over its peers.

You see, BT’s monopoly over the UK’s broadband market has attracted plenty of negative attention and some of the company’s peer have complained the competition commission about BT’s control of the market. 

As a result, BT is now under investigation by the European Commission and the company has to behave itself. For example, BT is now unable to offer customers cut-price deals that would undermine competition within the industry. BT must pass any increase in costs on to customers. 

Rising costs 

Unfortunately, BT’s costs are only going up. The hefty price paid by the company to win exclusive live broadcasting rights to 42 Premier League matches, along with BT’s £12.5bn deal to buy mobile provider EE, will both increase group costs.

That being said, Premier League rights and the EE deal will bring more customers to BT. However, the company will have to hike its marketing spend to win over customers. Many of BT’s peers are already spending heavily to acquire new customers from rivals. 

And it’s not just increasing competition and regulation that’s hurting BT’s outlook. Indeed, the company’s pension deficit now stands at a staggering £7bn and the deal to buy EE will add somewhere in the region of £10bn to BT’s existing debt pile. BT’s shareholder equity is already negative, and more debt will not improve the state of BT’s balance sheet. 

On top of these factors, BT’s valuation looks rich. BT is currently trading at a high, growth P/E of 15, although group earnings are set to expand at a steady 5% this year. BT’s dividend yield currently stands at 2.4%.

Time to sell?

So overall, with so many pressures facing BT, I believe that it could be time to sell the company — there are better opportunities out there.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.