BT Group PLC (LSE:BT.A) is facing growing risks linked to telecoms provider TalkTalk, which is reportedly behind on payments to Openreach, BT’s broadband infrastructure arm.
According to a UBS report released on Monday, the situation could threaten BT’s full-year financial targets and accelerate customer losses from its network.
The Financial Times reported that Openreach is considering halting new customer connections for TalkTalk amid a dispute over unpaid bills.
UBS analyst Polo Tang warned that a return to late payments by TalkTalk poses a serious risk to BT’s guidance of £1.5 billion in free cash flow for the 2025-26 financial year.
A missed payment could impact BT’s free cash flow by around 11%,” Tang wrote.
UBS estimates that TalkTalk’s bi-monthly payments to BT exceed £1 billion annually, making each instalment worth approximately £170 million.
Openreach lost 828,000 broadband lines in the last financial year, including a 420,000-customer decline at TalkTalk. TalkTalk is reportedly budgeting for a further net loss of 300,000 customers this year, assuming 100,000 new additions.
UBS cautions that those additions may not materialise if Openreach blocks new sign-ups.
Beyond payment issues, BT faces broader competition from low-cost rivals. Alternative network providers, or “altnets,” now cover more than 17 million UK homes and offer broadband services that are 20–30% cheaper than Openreach.
UBS also flagged the potential loss of up to 1.5 million Sky broadband customers, which could reduce Openreach revenue by £300 million.
The Swiss bank identified a third risk: potential control of TalkTalk by its bondholders if the company’s liquidity falls below £20 million.
TalkTalk’s senior and junior debt totals over £1.2 billion. Any takeover or merger, such as a previously reported combination with Virgin Media O2, could lead to further customer migration away from BT’s network.
UBS maintains a 'sell' rating on BT shares with a 12-month price target of 120 pence, implying a 33% downside from the current share price of 178 pence.
The valuation is based on a sum-of-the-parts and discounted cash flow model, incorporating sector comparisons.
The stock was flat at 177.7p.