Downward pressure on broadband pricing from regulatory effects may be nearing an end, with BT Group PLC (LSE:BT.A) set to lead with customer price rises in the new year, says UBS.
The bank said around a third of BT household customers are on contracts that will see at least 3.9% CPI price rises taking effect from the end of March 2022 and “provide a tailwind to the market”.
On a recent call with analysts, BT even indicated “it could be willing to put through 7-8% price rises given current high levels of inflation”, analyst Polo Tang noted.
BT Consumer’s broadband base will almost all be on inflation-linked contracts by the end of 2022, he added.
“However, it is not clear whether the likes of Sky/VMO2 will follow suit in terms of quantum of potential price rises (neither has annual CPI+ pricing built into contracts).”
While customer costs are likely to be going up, this follows a decline in broadband average revenue per user (ARPU) for the industry in 2021, the analyst said.
And wholesale broadband pricing also coming down, he added, with the ‘Equinox’ offer from BT’s Openreach infrastructure arm in October has lower fibre-to-the-premises (FTTP) wholesale pricing and infrastructure rival Cityfibre is thought to be pricing at a notable discount to Openreach.
“Prior instances where wholesale pricing has come down (Openreach FTTC volume discounts in 2018) have resulted in lower retail broadband pricing.”
The note comes amid Vodafone offering what Martin Lewis’s Money Saving Expert called the “cheapest fibre broadband we've ever seen”.
While both Vodafone and TalkTalk have made recent pricing cuts, Tang noted that November is normally a period of promotional activity.
Looking at the telecoms sector’s financial market valuations, the UBS analyst pointed out that BT Group shares are being supported by hopes of a takeover as the date of 10 December 2021 draws closer.
On that day, Altice, BT’s largest shareholder with a 12.1% stake, will be free to make an offer for the whole company.
“While we cannot rule out a bid, notable potential barriers include the National Security and Investments Act and the BT pension scheme."
Separately, it was noted that lack of a fibre or wholesale announcement by VMO2, the newly merged Virgin Media-O2 combine, has "eased concerns about rising infrastructure competition" for Openreach in the near-term.
But UBS remains "wary" of risks to wholesale market share and wholesale pricing.
Vodafone is seen as "a market share winner" in the UK for Tang but he said the bigger driver for the shares will be if the company provides reassurance on German subscriber/capex trends.