BTwatch Report #219 Extract: Q3 FY10-11 commentary
16 March 2011
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Extract from BTwatch, report #219. Click through for: the Executive Brief from this month’s report; the Report Snapshot; or to contact us for more information about the full 54-page report, this industry standard monthly report service, and ongoing subscription access.
A more aggressive approach emerges at BT Retail
“ Retail had a good quarter with our highest share of DSL broadband net additions for eight years. If you want cheap and cheerful, we’ve got it; if you want the best, we’ve got it. ”
– Livingston.
BT claimed to have gained market share in retail DSL broadband during the quarter, adding 188,000 customers, helped by the strongest take up of its BT Vision pay TV service for seven quarters (40,000 net additions). BTwatch notes that the telco made no reference to the proportion of Sky Sports subscribers in this figure, as it had for the previous quarter. Therefore, it does not seem unreasonable to infer that adoption of the strategically important Sky Sports service has not greatly improved after the underwhelming figures for the first months of availability; otherwise the retailer would surely have loudly boasted the improved performance in a quarter showing positive results overall for BT Vision.
It is also worth noting that, for the first time in many quarters, BT Group did not make reference to the number of views per month per customer for its BT Vision service. This suggests to BTwatch that there may be a change in strategy at the division for its television services. It could be that BT is less concerned about current usage levels, and more focused on driving numbers up and expanding a customer base on which it can build. This could mean the BT Vision+ box is being used more as a customer acquisition tool for other bundled services.
The division also has promotional offers currently running promising access to BT Vision content bundles free of charge with basic broadband and voice, which again indicates an emphasis on building its pay TV base while also continuing to be aggressive in its broadband acquisition strategy.
Low adoption rates for Sky Sports could also reflect the fact that — like the required companion BT Broadband service — the best BT Vision bundles and deals are offered with long contracts, which BTwatch continues to argue are counter¬¬ productive beyond controversial inertia selling tactics, since they disincentivise informed consumers from sampling services, and imply a lack of faith in service quality, thus undermining Internet Protocol TV’s strong potential for customer acquisition and winback. This marketing and selling weakness looks particularly glaring at a time when BT Retail has inevitably conceded defeat on its previous, margin¬ centric, premium customer focus, to now competitively and aggressively chase new customers, and up- and cross-sell, with strong price led offers. Informed BT Vision prospects may also have become reticent, while BT Retail’s plans for YouView video on demand and next- generation set¬ top boxes remain unclear.
BT Retail’s more aggressive marketing and sales of BT Vision and other Consumer propositions follows a similarly punchy approach to selling BT Infinity fibre based broadband services at prices in a similar bracket to premium ADSL2+ offerings, and leads BTwatch to believe the Consumer unit has significantly raised the level of its customer acquisition and retention game. While, in the mid term, this may pose a threat to consistently strengthening ARPU figures the division has posted, it could finally show awareness of, and willingness to tackle, the horror of a rapidly shrinking customer base.
The overall broadband figures were buoyed by take up of the BT Infinity, as well as customer base growth at the division’s PlusNet budget B-brand. While there are indications that aggressive pricing options have contributed to improved uptake of BT Total Broadband, the telco emphasised this still represents the higher end of the tariff spectrum, and was keen show growth is not dependent on lower value PlusNet tariffs.
BT coy on fibre performance
BT Group decided it will not provide a breakdown of subscriber numbers for its BT Infinity fibre product, or for wider wholesale uptake of fibre services. Anticipating sceptical response, Livingston stressed this is not a reflection on the performance of the emerging network — the progress on which the Group is said to be happy with — but a supposed wish not to provide too much detail on performance.
BTwatch suspects the decision not to publish figures could in fact reflect strong performance by BT Retail. With Openreach continuing to face difficulties serving its local loop unbundling (LLU) customers, the Group wish to avoid suggestion that scarce resources are being diverted to serve more profitable internal customer needs.
At the H1 FY10-11 results presentation, Livingston was more upfront on uptake, claiming 38,000 BT Infinity lines and a weekly run rate of more than 4,000 new customers (around 50,000 a quarter) for fibre from a network footprint that at the time passed three million homes (and extending reach by a further 100,000 per week). He indicated that, after a period of slower rollout due to adverse weather and a spike in demand for new LLU lines, the rate of extending reach by 100,000 homes per week is back on track. It was also revealed that some exchange areas, such as those around Basingstoke, have already reached fibre penetration of up to 14%, with others in higher single figure digits. Taking a thoroughly unscientific guess at current fibre levels, considering the demand seen in some areas and BT’s previous capabilities of deploying 4,000 new fibre lines per week, it would not be surprising if the company’s customer base is in the 75,000 to 100,000 range just over a year after its launch, and on a small footprint. BTwatch would also not be surprised to see hints of a quarter of a million fibre customers emerging around the time of BT’s full year results in May 2011.
In a 2011 interview, Neil Berkett, Chief Executive of rival Virgin Media, suggested his company had around 100,000 customers for its 50Mbps broadband offering, which launched a full year ahead of BT Retail, and “tens of thousands” of customers for its 100Mbps service. Although BT’s broadband base is around 25% larger than Virgin Media’s, this still demonstrates BT performing strongly in a new segment and seemingly benefiting from competitive pricing on fibre.
Digital content bringing copper back into fashion?
An increase in copper lines in Q3 was seized upon by Ian Livingston as a positive trend, heralding something of a fight back against supposed expectation of inexorable fixed to mobile substitution. It was acknowledged that the strong quarter coincides with many students returning to university and taking on new contracts, but the fact that this group of consumers, regularly identified as a generation that would turn away from the fixed line, may still be adopting fixed services can be viewed as positive for BT Group. While the reason for the customers adding new lines was not clear to BT — it could be the reactivation of small business or other secondary lines that were terminated during the recession — it does appear to be the need for the higher connectivity speeds that fixed broadband can provide compared to mobile, rather than fixed voice, that is leading the comeback.
However, a striking aspect of the increase in copper lines provided by Openreach is that it continues to be other service providers that are benefiting from the trend, not other BT Group divisions. Lines sold by BT’s own lines of business continue to haemorrhage connections, dropping across the board by a little under 10%.
[Further reference: Third quarter and nine months to 31 December, 2010 -- BT, 3 February 2011; Global Services surprise lifts BT results, shares -- Reuters, 3 February 2011; BT surprises the market as profits surge -- City AM, 4 February 2011; BT broadband share grows as profits soar -- V3.co.uk, 3 February 2011; ‘Unless you can convince people they should be paying, it's not worth doing' -- Sunday Telegraph, 23 January 2011.]
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Report: #219
Covering: January-February 2011
Published: March 2011
Next report: April 2011
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