BT Seeks to Quell Broadband Complaints With Faster Fiber Plan

(Bloomberg) -- BT Group Plc’s network division plans to spend at least 900 million pounds ($1.3 billion) on an expedited plan for full-fiber broadband in the U.K., addressing political and commercial pressure to boost internet speeds.

Openreach, the unit that BT was forced to make more independent last year, expects to lay 50 percent more fiber-optic connections to homes and businesses by 2020 than previously planned, bringing the new target to 3 million, according to a statement on Thursday. The aim to build about 10 million connections by the mid-2020s remains the same, though the network provider raised the prospect of boosting the goal if the conditions are right.

BT is facing calls to replace copper wires with fiber more quickly from politicians, regulators and communication providers that use its Openreach network, including Vodafone Group Plc and Sky Plc. The debate contributed to an agreement last year with regulators to legally separate Openreach from BT, though the former monopoly still owns the division and approves its budget.

“I will come up with hopefully commercial terms,” to attract customers to voluntarily accept a “hard and fast” switch-over, Openreach Chief Executive Officer Clive Selley said on a call with reporters.

Regulator talks

Openreach will consult with communications regulator Ofcom, as it seeks a guarantee that returns from the fiber push will justify the investment. It’s also seeking tax relief.

BT is fighting a separate decision by Ofcom last March to reduce rates for some of its wholesale fiber-to-the-cabinet broadband offerings, for which a decision is expected as early as this month. The carrier is facing multiple demands for its cash, as it contends with a massive pension deficit and rising competition for key sports broadcast rights.

“We think that BT’s announcement will have little impact on the attitude of Ofcom,” ahead of the decision on the wholesale rates, Jerry Dellis, an analyst at Jefferies in London, said in an emailed note. Dellis estimated an incremental capital expenditure hit for BT from the fiber plan at about 350 million pounds over the next three years.

BT shares rose as much as 2.8 percent, trading up 1.3 percent at 258.70 pence at 10:02 a.m. in London.

Openreach, which generates about a third of BT’s pretax earnings, has a difficult task in convincing customers like Sky, Vodafone and TalkTalk Telecom Group Plc to agree to a funding model. So far, they have balked at its proposal to add 7 pounds per month to broadband bills.

Commercial Offers

Vodafone Chief Executive Officer Vittorio Colao said he was open to the plan, provided the pricing is competitive and suits Vodafone customers. The carrier recently committed to back an alternative proposal by CityFibre Infrastructure Holdings Plc to connect as many as 5 million homes and businesses to fiber broadband by 2025.

“It’s good news, but of course it has to be translated into commercial offers,” Colao told reporters on a conference call.

TalkTalk said Openreach’s plan will only work if it “radically reduces proposed pricing,” making full-fiber affordable to all consumers and that the transition isn’t used to hide price hikes.

The initial phase of Openreach’s new “fiber-first” program will target most of the U.K.’s biggest cities, at a cost of about 300 pounds to 400 pounds per premises, and then connect surrounding towns. Openreach plans to hire and train 3,000 engineers in the coming year.

CityFibre said the announcement “is a clear response to competition from CityFibre and other alternative full-fiber infrastructure builders.”

©2018 Bloomberg L.P.