BT Group PLC (LON:BT.A) will need more customers to help it pay for its expensive TV sports rights packages, particularly as Amazon.com Inc (NASDAQ:AMZN) enters the market.
Amazon nabbed the UK rights to the ATP World Tour in August last year and is rumoured to be taking part in the next bidding round for the Premier League auction, due to begin on February 8.
Netflix is also reportedly looking to enter the race for the rights to broadcast the most-watched football league in the world.
READ: BT Group and Sky looking over their shoulders as Amazon rumoured to be in running for Premier League soccer rights
BT and Sky PLC (LON:SKY) currently share the TV broadcast rights in the UK for the Premier League.
Neil Wilson, chief market analyst at ETX Capital, said Amazon securing the ATP tennis rights was a “sign of things to come”.
“We’ve seen what happens when Amazon appears on the scene,” he said.
“BT may be happy to be a ‘number two’ to Sky, but it could fall further down the pecking order if Amazon and co muscle in.”
TV rights a costly business
However, Wilson thinks losing TV rights “may not be such a bad thing” for BT. He pointed out that it took a £1.2bn bid from BT - £300mln more than in 2013 – to outbid Sky for the Champions League rights last year.
Higher costs dragged BT’s profits lower in the third quarter.
READ: BT's quarterly profits fall as costs continue to rise but full year guidance unchanged
The company reported adjusted underlying earnings (EBITDA) of £1.83bn in the quarter ended December 31, down 2% on the same period a year ago and missing the consensus forecast of £1.84bn.
BT said some of the costs related to investments in the launch of new smartphones, including the new iPhone 8 and iPhone X in November.
It was also hit by higher business rates and its costly pension scheme.
Pension deficit and weak revenues a concern
In an effort to cut its pension deficit, BT is in talks with trustees of its current scheme as part of a triennial review.
The company also plans to appeal the High Court's decision to reject its bid to switch the rate used to calculate its pension increases for 83,000 current and former workers from the retail price index (RPI) to the lower consumer price index (CPI).
Another challenge for BT is addressing the weak performance in its wholesale unit and enterprise business Global Services.
Revenues in wholesale and Global Services fell in the third quarter, sending overall revenue down 3% to £5.9bn.
“The performance in the wholesale and Global Services divisions remains stagnant, whilst the pension situation is a concern,” said Richard Hunter, head of markets at interactive investor.
EE the star performer
Mobile network operator EE was the only one of BT’s divisions to deliver sales growth.
Hunter said EE has given BT “a real presence in the world of ‘quadruple play’ that is mobile, internet, TV and fixed line” and thinks this offering invites customer loyalty.
“The group continues to enhance the package, particularly in the TV area where its Sport coverage is taking traction,” Hunter said.
“BT is investing in its business, with the transformation and restructuring programmes on track and ongoing cost savings providing a fillip to the number.”
Numis maintains 'buy' rating
Meanwhile, Numis remains bullish on BT and thinks the latest quarterly results were “good overall”.
The broker repeated a ‘buy’ rating and target price of 256p on the stock, noting that BT left its full year guidance unchanged and is appealing the decision against its plan to change the indexation on pension increases.