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BT faces extra pressure on dividend from Virgin Media fibre acceleration

BT's Openreach has "little choice but to accelerate" its fibre broadband rollout in order to gain scale quickly amid reports that Virgin Media is seeking to expand its fibre footprint

Looks who's coming up behind you - Virgin Media!

BT Group PLC (LON:BT.A) faces further pressure on its dividend from potential increased full-fibre broadband competition from Virgin Media, UBS says, which could bring forward an earlier cut to the payout.

Media reports state that Virgin Media, owned by Liberty Global (NASDAQ:LBTYB), is seeking to expand its UK fibre footprint.

READ: BT considers dividend cut to fund full fibre broadband roll-out

Liberty has appointed advisors to drum up investment from infrastructure funds in a joint venture to get fibre-to-the-home (FTTH) into at least 2mln homes, reports suggest, separate from Virgin’s Project Lighting rollout to 4mln homes.

While project “seems to be at an exploratory stage”, reports suggest other telecom operators would be able to access the new network, with Walt Disney Co’s (NYSE:DIS) Sky a potential investor.

BT’s Openreach, meanwhile has already announced plans to roll out FTTH to 15m homes by 2025, subject to the right regulatory conditions.

“With the risk of growing competition from alt nets such as Cityfibre, Hyperoptic, Gigaclear and FibreNation, we think Openreach has little choice but to accelerate its FTTH rollout in order to gain scale quickly,” said UBS analysts in a note to clients. 

Dividend pressure

“In turn, this could put pressure on BT’s dividend in the near-term,” the analysts added, though they reckon this had already been anticipated by the market.

Nevertheless, the news is “likely to be negative for investor sentiment”, UBS said. 

BT recently warned investors that it may cut its dividend in “a year or two in the future” due to the pressure from investing in the roll out of FTTH.

Philip Jansen, who took over as chief executive of BT this year, has said it will cost £400mln-£600mln in extra investment a year to bring full fibre to 15mln premises.

BT shares were up 190.68p on Tuesday.

Quick facts: BT Group PLC

Price: 171 GBX

Market: LSE
Market Cap: £16.9 billion

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