BT Group Plc (BT/A), the biggest fixed-line phone company in the U.K., reported first-quarter earnings that fell less than analysts’ estimates as spending cuts cushioned investments in premium sports package.
Adjusted earnings before interest, tax, depreciation and amortization fell 0.8 percent to 1.44 billion pounds ($2.2 billion) in the quarter ended in June, BT said in a statement. Analysts had predicted 1.41 billion pounds, according to the average of seven estimates compiled by Bloomberg.
BT is cutting costs including capital spending and labor expenses to maintain Ebitda as the company builds up its sports programming. BT Sport and ESPN channels will be available on Aug. 1, an expansion into content that will probably cost the company 1 billion pounds in broadcasting rights alone over the next three years. While the channels -- free for BT broadband subscribers -- will lose money initially, the London-based company’s said they’ll boost subscriptions and customer loyalty.
“More than half a million households have now ordered BT Sport, and that’s before the channels have even launched,” Chief Executive Officer Ian Livingston said in the statement. BT is making good progress “despite the impact of regulation and the significant investments we are making for the future.”
BT reiterated its full-year forecast. It has said adjusted Ebitda will be 6 billion to 6.1 billion pounds this fiscal year.
The new subscriptions for BT Sport don’t prove “this has had a positive impact on the key metrics the investment was designed to boost,” Informa Plc analyst Ted Hall wrote today. BT “spent a small fortune” on the channels, he said.
BT fell 2.5 percent to 333.5 pence at 2:49 p.m. in London, parring the stock’s gains this year to 44 percent.
Revenue declined to 4.45 billion pounds from 4.5 billion pounds a year earlier. Gavin Patterson, who will become chief executive officer after Livingston leaves the post in September, will continue efforts to modernize the 165-year-old company as it builds up high-speed Internet and TV to find ways to compensate for declining demand for fixed phone lines.
The company is joining John Malone’s television giant Liberty Global (LBTYA:US) Inc. and Vodafone Group Plc, the second-biggest mobile-phone operator, in adding new services to telecommunications packages to lock in customers and boost monthly bills.
The sports packages are seen as a threat to other pay-TV operators in the U.K. British Sky Broadcasting Group Plc (BSY), Britain’s most popular pay-TV service, fell 6.2 percent on May 9, the day BT unveiled the channels. TalkTalk Telecom Group Plc, which sells Internet, phone and TV service through the YouView platform, fell 12 percent that day.
BT’s global enterprise business had a 50 percent increase in new orders for the quarter as it won large international clients including Credit Suisse Group AG, Livingston said on a call with reporters today. Revenue from the new business will be recognized over the course of the contract.
“Things are a little bit more positive on global services,” Livingston said. “The standout remains double-digit growth in the high-growth regions around the world, but also in Europe it’s a little bit better. It’s not declining as much.”
Global services revenue was 1.7 billion pounds for the quarter, down 2 percent from a year earlier. The company’s retail business, its largest, was little changed at 1.8 billion pounds. Openreach, the company’s local access network that provides infrastructure for calls and Web service, fell 2 percent to 1.25 billion pounds.
Ofcom, the U.K. telecommunications regulator, requires the former monopoly to give other carriers access to its network at regulated prices that decline every year. The company has estimated that the cap will cut revenue by 50 million to 100 million pounds this fiscal year and next.
Adjusted profit before tax rose 4.9 percent to 595 million pounds, beating analysts’ 563 million-pound estimate, according to the average of those surveyed by Bloomberg.
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