BT’s Profits Seen Down

According to Reuters BT Group Plc is expected to report lower third-quarter profits despite higher sales this Thursday, with the market looking for evidence of an improving trend in core profitability at the former UK telecoms monopoly.

A shock profit warning last month from larger European peer France Telecom has put the spotlight back on the challenges companies like BT face from sprightly new players, falling prices and the growth of Internet telephony.

Like France Telecom, BT faces an increasing threat from local loop unbundling, a process that makes it easier for rivals to launch cheaper and faster Internet and phone services.

With broadband Internet penetration rising rapidly, BT’s traditional phone business faces new threats from cheaper services like VoIP Analysts said on Friday there had been a recent spurt in unbundling activity in the UK, which involves rivals installing their equipment in BT’s telephone exchanges to gain access to the link between exchanges and homes and businesses. While this may not massively hurt BT’s third quarter figures, it poses a big threat in later quarters.

BT has been losing customers and revenues in its fixed-line business for some time but has responded by expanding “new wave revenues” from areas such as broadband Internet and managing the telecom and networking needs of corporations, but these businesses typically are less profitable than the traditional fixed-line business.

This has led to a decline in EBITDA margins, but BT says the underlying EBITDA trend is recovering, and its assertions are likely to come under close scrutiny next week.

Analysts said other areas that will be keenly watched included BT’s shares of retail broadband additions in the UK and progress at its pioneering low-cost cellphone service that works on both fixed-line and wireless networks.

The average forecast from a poll of 14 analysts was for the company to report earnings before interest, tax, depreciation and amortisation (EBITDA) of 1.36 billion pounds for the three months to December 31, down 2.8 percent on year-earlier levels, but above that of the previous quarter.

Average revenue was expected to be 4.87 billion pounds, a 6 percent increase on year-earlier levels, helped by acquisitions.

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