BT Poised to Cut Sales Forecast on Europe Contract Delays
Stock Chart for BT Group PLC (BT/A)
BT Group Plc (BT/A) may cut its sales forecast for this year as European corporate customers cut back on services from the U.K.’s largest fixed-line phone company.
An unfavorable regulatory pricing decision, which will reduce wholesale revenue, will also affect sales, said a person familiar with the matter, who asked not to be identified before the results. BT, which is scheduled to report second-quarter earnings Nov. 1, previously projected underlying revenue growth to improve in fiscal years ending March 2013 and 2014.
Chief Executive Officer Ian Livingston said in July that the corporate phone market in Europe is worsening and said London-based BT would target more business in Asia, Latin America and the Middle East. Customers outside the U.K. have been hesitant to sign up for new contracts and those that do are committing to smaller-than-usual deals, he said at the time. Sales were also hurt by a regulatory decision this year about the amount it can charge mobile-phone operators for calls to some numbers.
“The extent of the cut will be critical as we have argued that in the current environment, where revenue decline is accelerating, BT will struggle to accelerate cost cuts” to meet longer-term forecasts, Saeed Baradar, an analyst at Societe Generale in London, said in a note yesterday.
BT dropped as much as 1.6 percent to 213.70 pence in London trading and was down 1.3 percent as of 10:59 a.m. The stock rose 14 percent this year through Oct. 26, beating the 4.2 percent gain of the U.K. benchmark FTSE 100 index.
Dan Thomas, a BT spokesman, declined to comment before the company’s earnings release.
Underlying sales, which exclude less profitable traffic that regulators require BT to carry, will drop about 4.3 percent to 18.5 billion pounds ($30 billion) for the year ending March 2013, according to the average of 21 analyst estimates compiled by Bloomberg. BT reported a 1.9 percent sales decline in fiscal 2012.
The company’s global services business, which makes up 40 percent of revenue, has been disrupted as corporate customers cut employees and phone lines. Revenue for that unit declined 9.2 percent in the fiscal first quarter from a year earlier.
The U.K. Court of Appeal this year prohibited BT from charging mobile-phone operators a percentage of their retail price for calls to so-called non geographic numbers, used by call centers. The practice, known as ladder pricing, was previously banned by regulator Ofcom.
BT, which had previously only charged a fixed fee, introduced the new pricing method in 2009 and Barclays’s analysts said on Oct. 15 that ladder pricing may have been worth 100 million pounds a year to BT.
BT has reported three straight years of revenue declines as subscribers canceled home phone lines in favor of mobile devices. To combat this, BT has invested 2.5 billion pounds to roll out its high-speed fiber optic broadband network across the U.K.
The company has also been investing in sports rights, marking a new direction for the Internet-and-phone company. BT said last month that it will pay as much as 152 million pounds to show top English Rugby matches, winning the rights away from British Sky Broadcasting Group Plc (BSY) and Disney’s ESPN.
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