BT Offers Discounts to Prompt Customer Switch to Fiber

(Bloomberg) -- BT Group Plc is offering discounts to communication providers to get their customers onto faster broadband services, part of a push to boost internet speeds across Britain.

Openreach, the infrastructure unit of the former phone monopoly, is offering wholesale customers that use the grid cheaper prices than the maximum set by regulators if they bring subscribers onto services that use fiber, rather than copper.

BT is getting on board with a government goal for an expedited fiber rollout, to help Britain narrow the gap with countries like Spain and Portugal, after years resisting the call to speed investments. Openreach was forced to legally separate from the broader company last year by regulators as they attempted to spur spending, part of a discord that weighed on BT’s stock, contributing to the ouster of Chief Executive Officer Gavin Patterson.

The offer announced Tuesday by Openreach follows its previous backlash against price cuts imposed by regulator Ofcom for some of its most popular broadband services. Ofcom, however, said separately on Tuesday that it recognized that carriers spending on full-fiber services need to make a fair return on risky, long-term investments.

Openreach’s offer comes on the heels of a government telecom infrastructure plan released Monday, which called for a full-fiber rollout to 15 million buildings in the U.K. by 2025. Britain only has 4 percent of its buildings fully connected to fiber, compared with 71 percent in Spain and 89 percent in Portugal, according to the document.

Openreach will take a hit to its revenue and earnings from the discounts in the order of “high tens of millions of pounds,” for the 2018-2019 fiscal year, it said in a statement. The move isn’t expected to change BT’s financial outlook.

Clive Selley, the CEO of Openreach, has been consulting for months with communication providers that use the network -- such as TalkTalk Telecom Group Plc, Vodafone Group Plc and Sky Plc -- about how to get more of their subscribers onto fiber and fund a bigger rollout.

The deal is good news for TalkTalk, said CEO Tristia Harrison.

“More customers taking fiber underpins our commitment to stable” to average revenue per user, she said in an emailed statement. “Importantly, the agreement should support alternative network investment, including our plans to build a full-fiber network to over 3 million homes and businesses.”

Analysts were less sure it was positive for rivals. The price cuts are a “strategically sound move,” Bernstein analyst Dhananjay Mirchandani said in a note to clients, “but one that invites some near-term pain upon BT.”

BT’s transfer of 31,000 employees to Openreach will be complete by October pending consultation with employees and unions, it announced in a separate statement to the market on Tuesday.

©2018 Bloomberg L.P.