14 May 2020 20:35

Philip Jansen Chief Executive BT Group

BT could sell stake in Openreach

FILE PHOTO: A pedestrian walks past the logo of Australia's biggest investment bank Macquarie Group Ltd which adorns a wall on the outside of their Sydney office headquarters in central Sydney, Australia, July 18, 2017. LONDON (Reuters) - Australia's Macquarie Group (MQG.AX) has not expressed interest in BT's (BT.L) Openreach unit and is not in talks with BT's management, a source close to the investment firm told Reuters. The Financial Times said on Thursday BT was in talks to sell a multibillion pound stake in its network business, and named Macquarie as a potential buyer. BT has been holding talks with investors about selling a slice of Openreach, the company that operates Britain's broadband and landline telephone network, for billions of pounds. The FTSE 100 telecoms group has held discussions in the past month with Macquarie, the Australian investment bank, and a sovereign wealth fund, according to the Financial Times, which first reported the talks.

Matthew Howett, an analyst at Assembly Research, said: "BT will want to keep hold of Openreach rather than divest fully given the huge advantage of it being an anchor tenant for their broadband service." BT and Openreach both declined to comment. A deal could value Openreach at up to £20bn - double BT's market value. Its shares dipped below £1 on Thursday and closed at 102p - their lowest level for more than a decade. The stock was worth almost five times that amount as recently as December 2015. BT shares fell sharply last week after chief executive Philip Jansen axed the annual dividend to help fund a £12bn upgrade of the Openreach broadband network to ultrafast fibre.

BT Group's infrastructure unit Openreach has signed an agreement with American networking and communications firm Adtran to limit its dependence on Chinese company Huawei and to speed up construction of a fibre-based broadband system across Britain. The deal will also help Britain's biggest landline network to meet the guidelines introduced by the government earlier this year, the company says. According to the government's new rules, 'high-risk' vendors (such as Huawei) are excluded from sensitive 'core' parts of 5G and gigabit-capable networks, with a 35 per cent cap on high-risk vendors supplying parts to the non-sensitive areas of 5G and high-speed fibre-based networks. Huawei currently accounts for 44 per cent of the UK's full-fibre market, as per government data. BT, which currently has Huawei and Finnish Nokia Oyj as strategic partners, said earlier this year that complying with the government's new rules might cost it £500 million.

Openreach says it aims to provide ultrafast broadband service to 20 million homes before the end of the year with its Full Fibre network, and Adtran's SDX Series of optical line terminals (OLTs) and Mosaic Cloud Platform will help it to achieve that ambition. More than 600 retail carriers across the UK currently rely on Openreach to offer a broad portfolio of services to resident customers, enterprises, and small-to-medium businesses. Openreach claims to have the biggest fibre broadband network in the UK, covering more than 27 million premises. "We're already making our new ultrafast, ultra-reliable broadband network available to around 32,000 UK homes and businesses every week - and we're on track to reach our target of reaching four and a half million premises with 'Full Fibre' by the end of March 2021," said Peter Bell, Network Technologies Director at Openreach. According to Bell, Adtran's fibre network solutions will enable Openreach to build a better, faster and broader network for the customers, thereby helping Britain to "bounce back from the Covid-19 pandemic".

Dan Whalen, Adtran's chief product office, said that the company is excited to be a part of Openreach's plan and the selection proves that "Adtran's open, disaggregated approach to service creation and delivery is a blueprint for the telecommunications industry". BT Group Plc is in talks to sell a multi-billion pound stake in its wholly-owned network subsidiary Openreach to infrastructure investors to help fund an ambitious expansion in fibre broadband, the Financial Times reported on Thursday. The FT said potential investors, including Australian investment firm Macquarie Group Ltd and a sovereign wealth fund, had held talks in the last three weeks with the former telecoms monopoly. Macquarie, however, was not interested in a deal, a source close to the investment firm told Reuters. BT declined to comment on the FT report.

Upgrading Britain's broadband network is the centerpiece of Chief Executive Philip Jansen's strategy for the BT, but rolling out the fibre connections to 20 million premises by the mid to late 2020s will cost 12 billion pounds ($15 billion). Shares in BT fell to 11-year lows, giving it a market capitalisation of 10 billion pounds, after the company cancelled its divided a week ago to help weather the economic impact of the coronavirus. Jansen said the pandemic, which has seen a surge in the use of mobile phones and data, had made the network upgrade "a matter of extreme urgency". He said he was confident BT would strike a deal with the government and regulator to underpin the rate of return on the investment required for the plan. As widely expected in the broadband industry, Openreach, the semi-autonomous fixed access network division of UK incumbent operator BT, has selected ADTRAN as its third supplier of optical line terminal (OLT) and optical network terminal (ONT) equipment for its fiber-to-the-home/building rollout plans, which have grown recently in scale and ambition. Having steered clear of mass fiber access deployments for years, Openreach is now on a fast-track program to deploy FTTx networks around the UK. There are a number of factors that have jolted Openreach into action, but the competitive threat from the likes of CityFibre has been a key catalyst. Openreach says it has now passed 2.6 million premises with fiber and aims to hit 4.5 million by the end of March 2021. Ultimately it is aiming to pass more than 20 million premises by mid- to late 2020s (that target is conditional), a target that will involve FTTx investments of an estimated £12 billion in total. Openreach has, until now, been using technology from Huawei and Nokia, but began the process to source a third supplier in the middle of 2019. "We did a detailed assessment over six months and ADTRAN came up trumps. Now we're keen to get their kit into the ground as soon as possible," says Peter Bell, Network Technology Director at Openreach. Bell says a number of vendors were assessed – another four or five in addition to ADTRAN. He wouldn't identify them but it's likely that names such as Calix, Altice Labs, Dasan Zhone Solutions and Iskratel will have been considered. It's less likely that Fiberhome and ZTE will have been in the mix due to the nervousness around the deployment of Chinese technology that currently exists thanks to the efforts of Trump & Co. That geopolitical situation led the UK government, in January this year, to impose restrictions on how extensively Huawei gear could be used in the UK's 5G and FTTx networks: In a nutshell, UK network operators have three years to reach and then stick to certain thresholds, and for FTTx operators it means that Huawei gear can be used for a maximum of 35% of premises passed by any individual operator. Openreach had begun its search for a third supplier before that restriction was imposed, but it likely anticipated some kind of ruling and having ADTRAN in the mix will now make it easier for targets to be met. Openreach won't say what percentage of current homes passed are covered by Huawei gear but it's widely recognized in the UK broadband sector that more Huawei than Nokia gear has been deployed so far. Bell says Openreach is very confident it will hit the threshold, while confirming also that there are no plans to sideline Huawei (it is not getting the order of the boot) and that Openreach will aim to have a "healthy mix… with a target of 20 million premises there is a nice slice of the pie for all the suppliers," he notes. Bell says Openreach still has some testing to do with ADTRAN's gear to ensure it works OK with the various management, provisioning and ordering tools that it uses but that the tests won't take too long. For ADTRAN, this is a big deal in a number of ways. It is supplying its SDX OLT systems, its MOSAIC management software and the ONT units that are installed in the customers' premises in areas where ADTRAN's OLT gear is deployed. Openreach won't put a value on the deal, but Bell says the US vendor will be getting "a considerable chunk of the pie." Given the capex plans, rate of rollout, and restrictions on how much Huawei can be used, TelecomTV estimates this deal will be worth many tens of millions of dollars in revenues per year to the vendor once the supply chain is fully up and running. Bell says ADTRAN's SDX technology was selected because "it's flexible in terms of its scalability… it can be used in small deployments of just a few thousand premises or in largest deployments of tens of thousands of premises. It scales well and enables ease of deployment," notes the Openreach executive. ADTRAN is on a good run currently, and its efforts to develop a software-defined fixed access system that gives greater flexibility to network operators is paying off in significant new deals with major carriers – only weeks ago the vendor announced a long-term supply agreement with Deutsche Telekom, with ADTRAN executives noting at the time that others were in the works.


Diane Jarvis May 14 2020 20:42
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I think that BT is the only company that is close to making the transition to a cloud-based company in the near future. I think that BT is doing it because of the well that they have built in building the ability to deploy hidden services. I think that the transition to cloud has been sitting on the shelf since it doesn't make sense for them to do it
Dr. Lynn Lloyd May 14 2020 20:57
It is a great idea and very good to see BT and other European telecommunications companies getting involved in the open access movement. If Openreach's commercialisation strategy continues to reflect the Openreach vision, I think Openreach will have a significant part to play in the future of the telecoms ecosystem in Europe. Let us know what you think in the comments section below
kwilson May 14 2020 21:02
We would only be happy if we had a stake, but sadly we don't have a stake. The licence hasn't changed since we bought it in 2004, so we are covered by the current licence. What do you think of the Openreach licence? I think it is a good licence. It's a very fair licence and I think it will continue to be
Dr. Jacqueline Marshall May 14 2020 21:07
A: I really like the idea of the merger of BT and Openreach. When we have a great product, our customers enjoy it, and when we're losing it, we've got to have something to replace it. This will create a great opportunity for Openreach
Dr. Kyle Wilson May 14 2020 21:12
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Justin Collins May 14 2020 21:22
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Dr. Maria Hobbs May 14 2020 21:27
Openreach has a long history and I think that the Openreach brand is very well known. I think it is the most well known company in the UK and I think the Openreach brand has been very well received by the public. I think BT will be very successful in Openreach and I think it will be a great business for them
Dr. Marilyn Roberts May 14 2020 21:32
I think, for those who have been following this story for a long time, that BT is indeed a good idea. I am very happy that it will be acquiring a stake in Openreach and even more pleased that it is a small company
Raymond Ward-Briggs May 14 2020 21:37
For Openreach, I think it is still too early to say. I think that BT could sell its stake in Openreach, which is the cost of the service. If a service can be offered for free, it will be offered by other companies without any cost to the customer. For the Openreach CEO, I think it is still too early to say. I think that BT could sell its stake in Openreach, which is the cost of the service
lloydjean May 14 2020 21:42
If that happens, it would be an unwanted and expensive step. What do you think about BT could sell stake in Openreach to the state? If that happens, it would be an unwanted and expensive step. Question: What do you think about BT could sell stake in Openreach to the state? If that happens, it would be an unwanted and expensive step
Colin Hall-Morris May 14 2020 21:47
This is the stupidest question I have ever heard! The reason why BT said they will not do this is because they fear the new investors who would buy the shares. They do not want to sell the shares for $8M. BT is in a situation where they are selling the shares and trying to keep the price at $8M
Joanna Cooper May 14 2020 21:52
BT is a fabulously stupid company. It's been around for a long time, and it has a big infrastructure. It's a big, big, stupid piece of technology that's been around for a long time. It's stupid. And I don't think it can be sold. I don't think it can be taken off the table. I think it's a stupid point of debate
Alison Shaw May 14 2020 21:57
According to a page on the Openreach website, the investment fund is "a world-class investment service provider" that is "committed to investing in the future of healthcare." However, it's unclear whether Openreach is a separate company from Digital Health UK, the UK subsidiary of the Openreach group, which is headquartered in Michigan
Aaron Chadwick May 14 2020 22:02
How would you rate BT's ability to integrate with Openreach? (giveorgive) How much do you think the BT investment in Openreach is worth? (giveorgive) What do you think of BT's ability to integrate with Openreach? (giveorgive) Have you read the Openreach blog yet? (giveorgive) How would you rate BT's ability to integrate with Openreach? (
Glen Taylor May 14 2020 22:07
BT could help Openreach continue to grow what we're doing. But, I don't see the need for BT to sell out their stake. I think their stake is undervalued. BT could help Openreach continue to grow what we're doing. But, I don't see the need for BT to sell out their stake. I think their stake is undervalued. I agree, they are definitely undervalued
Elaine Webster May 14 2020 22:17
I agree with the decision to sell the stake in Openreach. I think that the board of directors should do the right thing and sell it to a higher bidder. It is a shame that the board of directors did not do so. Are you still against BT giving out free broadband to its customers? Mostly. I am not against the free broadband. I am against the excessive charging. I am not against the free broadband
Dr. Raymond Roberts May 14 2020 22:22
The Pharmaceutical Research and Manufacturers of America (PhRMA), which has been lobbying against the move, has said it is "concerned" by the five-year terms, but not necessarily that it would protect its interests
Rosemary Edwards May 14 2020 22:27
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