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Summary
- BT has recently announced a tariff increase in its services for new and re-contracting customers which is pegged at a base price adjusted to CPI announced at the beginning of the year plus 3.9 per cent.
- The telecom operator has stated that the price increase is required to make investments in the upgrade of its infrastructure in light of the massive increase in traffic. The new rates are set to go online from 1 September 2020.
- Other major competitors of BT, like Vodafone and TalkTalk Group also increased tariffs in line with their annual trend.
BT Group Plc (LON: BT.A) the largest telecom operator in the United Kingdom has increased its tariffs for new and re-contracting customers from 1 September 2020. This move which would affect as many as 1.3 million of the company's customers, would see each forking out £4.50 per month or £54 over a one-year period. What is interesting with this tariff increase is that it is 3.9 per cent over and above the inflation adjustment factor. Major competitors of BT like Vodafone and TalkTalk have also increased their tariffs which is more in line with their annual price rise trends. What is noteworthy this year, is the massive increase in online traffic which is necessitating an urgent upgrade in the telecom infrastructure across the country.
What are the factors that are governing BT’s tariff increase plans?
There are three major reasons that are governing the company's tariff increase policies. First, the company has a major pension commitment; it currently pays out on pensions a sum amounting to £800 million to nearly 280,000 people which is the largest in the country. Second, it is also working on two major capital expenditures which would give it a major capacity addition along with a leap into the next generation of telecommunication technology. The third is the hit its revenues have received from the pandemic which has forced the company to cut down its dividends this year, which is also a first in its history and has also put a suspension on it till 2022.
Major project under implementation by BT Group Plc
The company currently is working on two strategically important capital expenditure programmes. The first programme is the building of the Fibre- to- the- Premises (FTTP) network, which is being built in conjunction with aid from Ofcom and having a target completion timeline of end 2020.
The second project is the 5G rollout plan which is still in the pipeline. In July, this year amidst the row over Huawei supplied equipment being phased out from the United Kingdom; the company had announced that it would be facing a £500 million hit because of the government decision. This means that the company has an exposure to Huawei equipment and additional investment of at least £500 million will go into its 5G project if a new equipment vendor needs to be selected.
Let us discuss the share price performance of BT and its peers Vodafone and TalkTalk since the beginning of the year on the London Stock Exchange.
BT Group Pc (LON:BT)
The shares of BT Group Plc have been underperforming at the London Stock Exchange since the beginning of the year. On 2 January 2020, the shares of the company traded on the exchange at GBX 196.06 per share, and towards the second week of March, it took a sharp turn downwards to reach a low of GBX 107.32 on 12 March 2020. Since then, however, it made a minor recovery, but after that, not much movement has been seen in the stock. As of 10 September 2020, the shares of the company were trading at GBX 111.20 (GMT+1 14:58 PM), up by 1% from the previous close.
(Source – Thomson Reuters)
Vodafone Group Plc (LON:VOD)
The shares of Vodafone Group Plc have been underperforming at the London Stock Exchange since the beginning of the year. On 2 January 2020, the shares of the company traded on the exchange at GBX 147.80 per share, and towards the third week of March, it took a sharp turn downwards to reach a low of GBX 98.02 on 16 March 2020. The stocks turned volatile and recovered to GBX 141.12 on 8 June 2020, since then there has been a downward movement in the prices of the stock, and as of 10 September 2020 the shares of the company were quoted at GBX 109.40 (GMT+1 15:28 PM), down by 0.13% from the previous close.
(Source – Thomson Reuters)
TalkTalk Telecom Group Plc (LON:TALK)
The shares of TalkTalk Telecom Group Plc have suffered on the London Stock Exchange since the beginning of the year. On 2 January 2020, the shares of the company traded on the exchange at GBX 118.00 per share, and towards the third week of March, it took a sharp turn downwards to reach a low of GBX 71.25 on 19 March 2020. Since then, however, there was an upswing, which led the prices to GBX 101.70 on 8 June 2020, afterwards, the stock has been on a downward spiral once again, and as of 10 September 2020 at the close of trade the shares of the company were quoted at GBX 74.00(GMT+1 15:33 PM), down 1.33% from the previous close.
(Source – Thomson Reuters)
TalkTalk Telecom Group Plc is a Business-to-Business (B2B) telecom services company based in the UK. It offers value for money services to its clients, which includes mobile telephony, broadband, fibre, landline, TV etc.
Conclusion
The revision of tariff structure of BT group Plc is unlikely to have an adverse effect on its number of subscribers as the growth in the digital segment of the telecom market has been significant in the past few months. The company’s current projects being developed are of critical importance for itself as well as the United Kingdom and needs to be completed on schedule, and the rise in tariff will be supporting that.
