Barclays Capital has taken a look at the European telecoms sector and sees the UK’s big gun, BT Group (LON:BT.A), as being vulnerable to competition.
BarCap has cut its target price for BT to 280p from 350p and downgraded the stock to ‘equal weight’ from ‘overweight’ after issuing a research note entitled “The Rise of Wholesale Only”, which looks at Open Fiber’s plans to shake-up the Italian telecoms infrastructure scene and wonders whether other EU markets could be susceptible to the same treatment.
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“Until recently it was almost unthinkable that any company would consider creating a third expensive parallel Telecom infrastructure, competing with EU incumbents and cable, given the high barrier to entry/cost of roll-out, relatively stable competition plus mature nature of the industry; however, we are now seeing strategic moves across a number of European markets, with Open Fiber in Italy the highest profile case study, and others following,” BarCap said.
The bank reckons only Germany and the UK are likely to see new “wholesale only” entrants on a similar scale to Italy, given low incumbent fibre-to-the-home (FttH) builds and high service provider interest.
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“Actual competitor builds to date in the UK have been few and far between, even if the narrative has been consistently noisy; however, we do see BT as potentially vulnerable, especially given the increased focus of numerous infrastructure funds and regulatory direction. Resolution of this overhang for BT looks unlikely, in our view,” BarCap said.
BarCap says that key stakeholders – broadband service providers, mobile network operations and government agencies – are all keen to see the alternative FttH build model succeed, creating infrastructure competition for BT.
To head off the threat of competition, BT would have to accelerate FttH builds or provide lower wholesale costs, BarCap suggests but to do so would weaken its own cash cows: the copper wire network and its fibre-to-the-cabinet (FttC) network.
Shares in BT fell 2.8% to 235.55p in morning trading.