By Simon Zekaria
LONDON-- BT Group PLC plans to inject GBP1.5 billion ($2.3
billion) into its pension plan by the end of April as part of a new
16-year program at the British telecom operator to shrink its GBP7
billion pension-fund deficit.
The group detailed the multiyear plan to pay down the growing
deficit on Friday amid signs that robust domestic demand for
high-speed Internet access is boosting its operating
performance.
BT turned in a better-than-expected 13% rise in third-quarter
net profit, helped by a 15% rise in broadband and television
revenue from the same period the previous year.
The 168-year-old former monopoly, which has one of the largest
pension plans in the U.K., said its deficit had grown to GBP7
billion as of June 30 from GBP3.9 billion in 2011. The widening
deficit reflects low investment interest rates, BT said.
BT said it would pay GBP2 billion into the plan over the next
three years, including the initial GBP1.5 billion plug.
Net profit rose to GBP558 million in the three months ended Dec.
31 from GBP493 million in the same period a year earlier, compared
with market expectations of GBP514 million.
Revenue fell 3% to GBP4.47 billion, versus market forecasts of
GBP4.49 billion. Still, revenue at BT's consumer division, which
includes its broadband business, rose 7%. Free cash flow jumped 64%
to GBP904 million.
Chief Executive Gavin Patterson said operators are responding to
the strong market demand for fiber broadband. A little more than a
third of BT's retail broadband customers, in more than 2.7 million
premises, now are using fiber.
BT is betting on its growing its TV-sports-channels business to
win broadband Internet subscribers from rivals such as Sky PLC and
Liberty Global PLC's Virgin Media. It said viewing of its English
Premier League soccer matches was up 17% in the quarter. BT and Sky
are squaring off in the next three-year auction for live Premier
League matches from 2016-19, which is due to complete next
month.
"We are very clear on our strategy," Mr. Patterson said.
"Clearly there are risks [and] we are very conscious of those
risks. But we are also very clear on how sport and the Premier
League can add value.
"We won't overpay for it," Mr. Patterson said of BT's strategy
in the bidding process.
The company said it still expects its fiscal-year earnings
before interest, tax, depreciation and amortization, adjusted for
exceptional items, to be between GBP6.2 billion and GBP6.3
billion.
BT shares were down 1.7% at 421.8 pence in midafternoon London
trading. Hargreaves Lansdown analyst Richard Hunter said tackling
the funding deficit would boost investor confidence in the
stock.
But Darren Redmayne, chief executive of advisory service Lincoln
Pensions, noted the deficit had worsened amid bond buying in the
market, despite the U.K.'s improving economy. "This is a case in
point of the negative effect of quantitative easing and low
interest rates on pension funds," he said.
Mr. Hunter also said Premier League rights could be costly.
Mr. Patterson added the company is making "good progress" on its
potential acquisition of mobile operator EE for nearly $20 billion.
The period of exclusivity, in which BT is talking terms with the
operator, still has a "number of weeks to run," Mr. Patterson
said.
Mr. Patterson also said there would be "no justification" in any
possible request for the company to spin off its infrastructure
division due to competition concerns.
In a busy U.K. telecom market, Sky said on Thursday it has
reached agreement to partner up with the U.K. business of Spanish
mobile-phone operator Telefónica SA, with the British
pay-television company launching a mobile service for the first
time next year.
"I am not hugely surprised about it," said Mr. Patterson,
calling it a "vanilla" so-called mobile-virtual-network-operator
deal, in which operators rent capacity from another network.
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