Photographer: Michael Nagle/Bloomberg

BT Bet on Apple's Most Expensive iPhone Has Yet to Pay Off

Updated on
  • Mobile unit EE reports fewer customer additions than last year
  • U.K. phone carrier to appeal court decision on pension formula

BT Group Plc Chief Executive Officer Gavin Patterson bet big on Apple’s most expensive iPhone. The wager has yet to pay off.

After spending millions on commercials featuring actor Kevin Bacon and singer Ed Sheeran to advertise new Apple products, BT’s mobile unit EE posted only small quarterly customer gains. Some analysts had hoped for for a bigger payback from subsidising the purchases of the 1,000-pound ($1,422) Apple iPhone X and 400-pound Apple Watch 3.

Kevin Bacon advertising EE and the iPhone X.

Source: EE

Compounding that weakness was another revenue slide at BT’s global services division, the IT unit it’s been trying to turn around for months, slower growth in the broadband business and evidence of slim order books in the wholesale and business divisions. The stock slid the most in a year.

“Overall, the company is losing some steam,” said Stephane Beyazian, a Raymond James analyst in London.

Apple on Thursday reported lower sales of iPhones than a year earlier, but eased investor worries by showing solid demand for the iPhone X.

At BT, Patterson tried to quell concerns over the investment in Apple products, explaining that the outlay at EE will translate into higher profits later and that the company was already seeing strong customer numbers from the Apple Watch 3. BT said sales of the Apple products exceeded its expectations.

“We believe the investments for our existing and new customers will bear fruit,” Patterson told analysts on a conference call.

The shares dropped as much as 6.2 percent. They were down 5.4 percent to 242.25 pence at 11 a.m. in London.

Low-margin contracts

Third-quarter adjusted revenue fell 3 percent to 5.97 billion pounds, driven by BT shifting away from low-margin global services contracts, and missed analysts’ average estimate of 6.07 billion pounds, according to a survey from the London-based company. Global services revenue fell 9 percent to 1.27 billion pounds.

BT has cut thousands of jobs and changed management as it tries to revamp the low-margin IT unit, which accounted for one-fifth of revenue but only 6.5 percent of profit last fiscal year. It contributed to a writedown a year ago, when BT revealed a worse-than-expected accounting scandal in Italy and delivered a profit warning.

Shareholders of BT are awaiting news on several major developments to provide clarity on the company’s cash-flow outlook in the first half of 2018, including the outcome of bidding this month for Premier League soccer broadcast rights and the results of a triennial pension review, which will determine how much cash BT has to funnel into a gaping deficit.

After last month being denied an effort to curb future pension payouts by changing the formula for calculating inflation, BT on Friday said it would appeal the court decision.

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