BT Group
09/15/2006
 BT Group (BT.A) has come a long way since the end of the dotcom bubble six years ago. Following a massive restructuring, the telco is now on a much more sustainable growth path. The company is also embracing the supposed perils represented by 21st century technologies. 'New wave' revenues now account for over a third of turnover, and will in our opinion remain an engine of growth.
The most recent quarterly results reaffirm our view. Although traditional revenues are in decline, sales of new technologies are more than compensating and the pipeline of products that BT has in store should ensure that this remains the case. During the quarter turnover rose 3 percent to £4.9 billion, even though 'old school' revenues fell 4 percent.
'New wave' sales relate in the main to networked IT services, broadband and mobile phones. Revenues from these sources rose 18 percent to £1.6 billion.
The rollout of several key products should drive further earnings growth at BT's retail operations. One such offering is BT Fusion, the world's first combined fixed and mobile phone service. BT's new suite of 'Voice over Internet Protocol' products is also state of the art. A digital TV offering, BT Vision, is set for launch in the Autumn.
The wholesale division meanwhile is also in good shape. Revenue here increased 2 percent to £1,847 million, with broadband growth a significant driver. The business remains on course to launch BT Movio, which enables mobile operators to supply TV and radio channels, later this year. Virgin Mobile will be the first retail partner to take the service to market.
BT's Global Services division is leading an international assault. Revenue in the first quarter grew by 4 percent to £2.2 billion. Order intake was robust with networked IT services contract orders of £1.0 billion.
August 1 marked a milestone in BT's history when Ofcom removed 22 years of (fixed line) price controls. We believe this new pricing flexibility will translate into earnings gains. It will allow BT to move to arrest the loss of existing fixed line customers and reclaim market share. BT will also be able to more effectively bundle 'new wave' offerings.
We believe that BT has significant upside potential. We believe that the group is in an excellent position to arrest falling fixed line revenues whilst exploiting the earnings potential of 21st century technologies.
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