Labour’s Pledge to Nationalise BT Group’s Openreach Network Drags the Stock Down

Labour’s Pledge to Nationalise BT Group’s Openreach Network Drags the Stock Down

UK’s opposition Labour Party has pledged that if they come to the power post December 12 snap election, they would nationalise parts of fixed telecom services provider BT Group to provide free full-fibre broadband for all in the nation.

In a statement, the party said that they would nationalise Openreach- the digital vertical of the UK's largest fixed-line telecom services provider- BT Group Technology, BT Enterprise and BT consumer.

The UK’s Labour party pledge for public ownership of big firms sent signals through the telecom sector as on November 15 (Friday) with an electoral pledge to nationalise part of UK's biggest fixed-line telecom operator BT Group to provide free fibre-optic broadband. 

Labour's party chief Jeremy Corbyn who outlined his plan during a speech ahead of December 12 general election narrated that broadband is being "at the heart of his government's pledge to reshape the future of the British economy and society."

Jeremy Corbyn stated that “what was once opulence has now become necessity”. That’s why full-fibre broadband is exclusively required to be a public service, which would bring communities at one platform, with broad, equal access and to a connected society.

Jeremy has pledged to nationalise BT Group’s digital infrastructure network- Openreach and other related businesses. It was further elaborated that the British Parliament would decide the value of the company's Openreach and other broadband-related business and shareholders of the group will be compensated with government bonds. The nationalisation would be financed by a tax on tech giants like Amazon, Facebook and Google.

At present, approximately 7% of the UK’s premises have accessibility to full-fibre broadband, where fibre optic cable is used instead of copper to connect homes to the internet. Labour party has pledged to provide free broadband to 15m to 18m premises within five years and is planning to roll this mega plan to every individuals and business by 2030.

However, by far UK’s digital infrastructure needs an upgradation, as in South Korea approximately 99% of premises have full-fibre broadband internet, in Japan, the penetration is around 97%, Portugal has about 89%, and Spain has penetration of approximately 71%. In contrast, Britain has just less than 10% of premises with full-fibre broadband internet. Now opposition Labour party has taken a pledge to provide free fibre-broadband internet access to every individual and businesses by 2030.

However, the incumbent PM Johnson has already pledged to roll-out full-fibre broadband to all homes by 2025 with a tentative capex of £5bn if they win the December 12 general election. But Labour party said that there would be on one-off capital expenditure of £15.3bn to handover full-fibre network, which was on top of £5bn, earlier promised by PM Johnson.

Lately, the Chief of BT Group Philip Jansen had commented that PM Jonson’s time span to roll-out full-fibre broadband to all individual by 2025 is impossible to achieve and he also stated that firms would require government’s support and regulators help to create conditions that would facilitate it to make a fair return.

BT Group

London Stock Exchange-traded BT Group (BT) is the UK-headquartered fixed-line telecom services, provider. The company's operational interest is diversified into four operational segments which are Global services, Enterprise, Consumer and Openreach. The company's Openreach vertical provides services like copper and fibre connections homes and businesses from its exchanges. The group has a business presence across Asia-Pacific, Europe, the Middle East and the Americas.

During the financial year ended as on 31 March 2019, the group’s 40.3% revenue came from Consumer business segment, 29.66% were derived from Openreach segment, 24.82% from Enterprise and rest 17.67% were reported to be coming from its Global Services. (Source: Thomson Reuters).

Shares of BT Group trading lower as on November 18 (Monday)

As on November 18 (Monday), shares of BT Group opened 2.98 points or 1.54% lower against the previous closing price at GBX 190.02 and registered an intraday high of GBX 193.34 and a low of GBX 190.0, respectively. At the time of writing (before the market close at 09:15 AM GMT), its shares traded 1.58 points or 0.82% lower at GBX 191.42.

However, its shares have underperformed the benchmark FTSE 100 as on a YoY basis, its shares have tumbled more than 24%, whereas the benchmark FTSE 100 has delivered a price return of 4.12% during the period, indicating relative price change of more than 32%. In the past 52-weeks, its shares have registered a high of GBX 268.0 and a low of GBX 157.67, and at the current trading level, its shares were approximately 28% off those highs.

The telecommunication services provider holds a market capitalisation of approximately £19.03bn, which ranks it among the large-cap companies listed on the London bourse and an essential constituent of FTSE 100 index as well.

However, shares of BT Group held up relatively well, but Goldman Sachs has put on hold its erstwhile plans to infuse £1.5bn in a broadband network. There has been a buzz in the whole telecom sector and TalkTalk has suspended their plans to divest a related business. Shares of Talk Talk Telecom Group Plc (LON: TALK) have also plummeted since November 15, the day Labour’s announced their radical move, as on November 18 (Monday), (before the market close at 09:55 AM GMT), its shares fell around 0.40% to GBX 105.20 and registered an intraday high of GBX 107.60 and a low of GXB 104.80, respectively.

The announcement for nationalisation has left BT Group’s shareholders nervous about the future prospects over the Labour’s pledge to nationalise the telecom company’s Openreach network once they get into the power post December 12 snap election, as it derives a major chunk of its revenue from the segment.

Many investors criticised this move as "radical", and it could scare domestic as well as foreign investors. One of BT's investor said that this move would just not hit only BT, but it will have considerable impacts on its peers like Virgin Media and Sky as well, warning that a lawsuit would likely follow.

Meanwhile, Conservatives too described this announcement to nationalise BT Group's Openreach arm as radical, and PM Johnson criticised Corbyn’s broadband plan as “barmy scheme”.

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