BT blames cost of iPhone X for earnings dip at EE mobile unit
BT blamed the upfront costs of the £1,000 iPhone X for a squeeze on profitability that rattled investors as the company heads into a crucial series of decisions on regulation, pensions and the Premier League
EE, which has been a bright spot for BT as other divisions have struggled, increased revenues 4pc in the third quarter, but saw its underlying earnings dip 6pc on last year.
Gavin Patterson, BT’s chief executive, said the upfront costs of the new handset would lead to higher earnings for EE over time, but the initial impact contributed to overall earnings that were slightly short of forecasts.
Investors bruised by BT’s torrid 2017 of accounting scandals, regulatory fines and profit warnings, sent the shares sliding 2.2pc to 250.3p on Friday, regardless of Mr Patterson’s assurance that the company will hit its full-year targets.
Despite a further slowdown in the broadband market, which BT said was reaching maturity before the technology shift to ultra-fast fibre optics, the company highlighted progress in its attempts to sell bundles of telecoms and TV services to households. The average BT customer now subscribes to 2.02 services, an increase of 3pc.
BT
Total revenues for the quarter were down 3pc at £6bn, dragged lower by the continuing struggles of the Global Services IT outsourcing division.
BT is in the midst of an overhaul and digital modernisation programme that could trigger sales of overseas network assets, but sales for the business fell 9pc. BT’s public sector business has also suffered in the squeeze on government contracts, but there were no signs of the serious troubles that have hit Carillion and Capita.
Mr Patterson now faces a gauntlet beginning with the Premier League rights auction, in which first round bids are due next Friday. The risk of steep inflation has decreased after tensions with Sky were defused by a reciprocal sports channel wholesale deal. However, speculation persists that Amazon could enter the fray, with BT most likely to be outbid.
UK live broadcasting rights sales
“We know what it is worth to us,” said Mr Patterson, viewed by investors as the remaining architect of BT’s push into sports broadcasting following a management overhaul.
BT has pulled back on marketing spending for its television service, which lost 5,000 customers in the quarter, while its strategy is in flux and it seeks to maintain profitability in its consumer businesses.
After the Premier League auction the next hurdle is a crucial Ofcom decision on wholesale broadband price caps. BT is pushing for the charge controls to be made less strict, arguing it will be able to invest more in network upgrades. So far it has committed to only three million ultra-fast fibre lines by 2020.
The company is also attempting to keep a lid on its pension bills in a negotiation with trustees and unions due to conclude by the middle of the year. Fears it will have to pay hundreds of millions of pound more in top-up payments are casting a shadow over the shares, which are at around their lowest level since Mr Patterson took the helm in 2013.
