Wireless Federation

BT Thursday reported a 2% rise in fourth quarter group revenue to £5.42 billion from £5.29 billion a year earlier, above analysts’ expectations.

Still, group profit for the three months ending 31 March declined 18% year on year to £494 million from £601 million, which the company attributed to a rise in operating costs, and leaver costs.

The U.K. incumbent said earnings per share during the quarter rose 11% on year to seven pence, with free cash flow increasing to £1.7 billion – a rise of 9% from the same period a year earlier.

The company also raised its full year dividend 5% on year to 15.8 pence per share.

“Free cash flow is the best we’ve seen in the last six years,” said Ben Verwaayen, CEO of BT, during the company’s results presentation.

He attributed BT’s fourth-quarter results to a strong performance from its Global Services business, which provides managed IT and telecoms services to enterprises.

“Global Services now serves 60% of the Fortune 500,” said Verwaayen, who commented that BT had signed up 260 enterprise customers, or £2.8 billion worth of contracts, in the fourth quarter alone.

Revenue at the unit increased 10% on year to £2.23 billion from £2.03 billion, the highest quarterly growth for over two years, according to BT.

The performance of Global Services underpins BT’s transformation into a software and services-led company from a traditional telecoms player.

Verwaayen highlighted that traditional voice calls contributed 11% of the group’s fourth quarter revenues, a percentage now virtually equalled by its broadband business, while IT services made up 22%.

“The whole nature of our revenue has changed dramatically,” he added.

“The results are better than we expected,” Scott Morrison, research vice president at Gartner, told Total Telecom.

Yet, while Global Services was the highlight of BT’s results, it still only managed to raise its quarterly EBITDA margin by 0.4% on year to 13.7%.

“Revenues might be growing but the margins aren’t,” said Morrison.

“The numbers are moving in the right direction, but they’re just not moving fast enough,” he added.

BT Retail showed a third successive quarter of revenue growth, rising 2% on year to £2.16 billion from £2.12 billion a year earlier, while revenue at its wholesale division continued its steady decline, falling 12% year on year to £1.18 billion from £1.34 billion.

“The decline is being driven by the continued drive to LLU (local loop unbundling), and ongoing price reduction,” commented Hanif Lalani, BT’s CFO.

Openreach saw flat EBITDA on year, and revenue fall 1% to £1.320 billion, from £1.336 billion a year earlier.

One surprise came in the form of BT Vision – which saw an influx of new subscribers.

“In this quarter our net additions were 94,000, which is more than Sky and Virgin put together,” said Verwaayen.

The total installed user base for BT Vision has now reached 250,000, according to BT.

Still, with BT’s commitment to its next-generation network, 21CN, capital expenditure will continue to be an important issue.

“BT has started something it can’t stop, it has committed to that £10 billion investment in five years,” said Morrison.

Lalani said that BT expects capex of £3.1 billion during the next financial year, adding that if it could reduce this figure to below £3 billion by 2010, they will have made “good progress.”

For the financial year 2008-09, BT said it expects revenue growth to remain positive, and free cash flow to remain relatively flat.

Verwaayen said that the company expects to generate cost savings of £700 million, up from £625 million during the financial year 2007 to 2008.

Company chairman Sir Michael Rake took an opportunity during the results presentation to praise Ben Verwaayen, who announced his resignation as BT’s CEO in April.

“There is absolutely no doubt that Ben has completely reinvented this company,” he said.

“When [Ben] took over, BT was a bit like a rudderless ship – it had no mobile business, and no revenue growth engine. He, and the team he brought in really turned the company around and drove BT ahead of the competition in terms of the kinds of services they began to offer,” said Morrison.

Verwaayen’s successor BT Retail CEO Ian Livingston said he will focus on making the company more agile.

“We need to focus on our attitude to our customers, to our costs, and frankly, to our speed,” he said.

“We have to move at the speed of software…we’re in a software world now, not a telecoms world,” he commented.

“With Livingston at the helm I think we’re going to see a period of consolidation for BT,” said Gartner’s Morrison.

He explained that while Verwaayen took risks, made acquisitions and concentrated on the top-line, he expects Livingston to reign in the spending on inorganic growth and focus his attention on the bottom-line.

“BT still has a segmented approach to its customers, so I expect Livingston will address this by streamlining the company and simplifying its operations,” he commented.

Wireless Mobile Telecom Wireless News