Mike Cansfield
BT Q2 results: The transformation starts here
BT's Q2 results were announced today for the three-month period ending 30 September. Revenues for the quarter were £4.94bn, up by 4% in comparison with the same period last year. EBITDA (before specific items and leaver costs) for the quarter increased by 2% year-on-year to £1.42bn. Free cashflow for Q2 is at £0.34bn in comparison with £0.50bn in the same period last year. The reduction is due to increased capital expenditure and working capital. Net debt is down by 1% to £8.08bn.BT also announced today that it has now delivered 1 million unbundled local loop lines (ULL) thus signifying a new stage of competition has been reached in the (still) rapidly growing broadband market. Comment: In terms of the financial performance, there is not a lot you can really say that has not been said before. This is a predictable set of results with revenue growth, EBITDA growth and net debt figures almost identical to their Q1 equivalents. Remember too that BT has no sizable mobile business and so to achieve any growth is creditworthy. We know BT can generate cash, but 3% revenue growth is modest.The real story here is the transformation that is to take place in BT. Later this month two things are to happen that will signify how BT is moving from the old world to the new, from planning to implementation, from a product to a services business. Firstly, BT switches on its next-generation network (called 21st Century Network, or 21CN) in South Wales. This is the start of a process that will complete in 2011 that will greatly simplify its network and systems operating structure, and enable it to both speed-up and automate service delivery. Although not risk free this brave new world starts this month.Secondly, BT is to launch its IPTV offer to consumers in the autumn (which we take to mean November). With 3 million retail broadband customers of its own it has a reasonable customer base it can target. More importantly it now has in place over 250,000 of the home hubs required to provide the in-home platform for the service. The importance of this is that the home hub is the basis not just for IPTV, but also BT's fixed-mobile voice convergence service (Fusion), and can connect to laptops and game consoles wirelessly. These new services are seen as the great hope (and not just by BT - France Telecom are following a very similar course) for growing new revenues in the consumer space.How well BT can exploit the potential of 21CN, develop and deliver new services, and above all market them is the big challenge for BT. All this at a time when competition gets stronger by the day. Make no mistake, this is a transformation and it starts here.
