BT to Invest $3 Billion on Super-Fast Broadband

By Reuters  |  Posted 07-15-2008 Print Email
The British telecom giant aims to bring video conferenecing and interactive gaming to 10 million UK homes.

Britain's BT plans to invest 1.5 billion pounds ($3 billion) to roll out super-fast broadband to up to 10 million UK homes by 2012, enabling services such as video conferencing and interactive gaming.

The group said it would suspend its share buyback program with effect from July 31, given the strategic priority of the broadband investment, but remains committed to its dividend.

It will also make the fiber network available to other Internet service providers (ISPs), such as Carphone Warehouse and BSkyB, through wholesale to ensure the broadband market remains competitive.

Those ISPs, which have put their own copper lines into BT's networks in recent years to give them more control over pricing, could also decide to repeat this process with fiber.

The program is Britain's largest ever investment in super-fast broadband, which will deliver speeds of up to 100 Megabytes per second.

The fiber will be linked to the street cabinet--and in some cases, such as the Olympic village for the 2012 Games--directly to the premises.

Homes linked to a fiber-to-the-cabinet network will receive initial speeds of up to 40 MB but BT expects this to increase to 60 MB with new technologies. Those on a fiber-to-the-premises network will see speeds of up to 100 MB.

"Broadband has boosted the UK economy and is now an essential part of our customers' lives," Chief Executive Ian Livingston said in a statement.

"We now want to make a step-change in broadband provision which will offer faster speeds than ever before. This is a bold step by BT and we need others to be just as bold.

"We want to work with local and regional bodies to decide where and when we should focus the deployment. Our aim is that urban and rural areas alike will benefit from our investment".

BT noted a supportive and enduring environment was "essential" for the investment, which adds around 1 billion pounds to its existing expenditure plans for fiber deployment, to take place.

It expects the initial investment will result in around 100 million pounds of incremental capital expenditure in each of the 2008/09 and 2009/10 financial years, with the remaining incremental spend of 800 million pounds being spread over the subsequent three years.

Analysts welcomed the announcement, which they said had been mostly expected, although shares in BT were down 2.3 percent at 197 pence at 0815 GMT, in an overall lower market.

"This phased rollout is very much in line with our expectations, and provides clarity on capex needs whilst reaffirming dividend guidance," analysts at Investec said in a note to clients.

"With much of the spend back-end weighted we see little change to near-term EPS forecasts and cash flows."

Analysts at Morgan Stanley said the investment would also help protect BT from competition from cable group Virgin Media, which is rolling out faster broadband speeds.

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