Shares of telecom giant BT Group PLC (GB:BT.A) faced a setback yesterday after its major client, Sky Group, picked its British rival firm CityFibre to launch its broadband services. This poses a challenge to the existing agreement between BT Group and Sky, which involves using BT’s Openreach infrastructure for broadband services.
Sky indicated that this rollout will target areas not covered by BT’s Openreach network. However, BT’s investors were unhappy with Sky’s choice of a second broadband partner. Following the news, BT shares declined over 6% on Tuesday, wiping off around £1 billion of its market value. Shares opened in red on Wednesday and were down 0.64% as of writing.
BT Group is the biggest telecommunications company in the UK, with operations in 180 countries. Meanwhile, Sky Group, now owned by Comcast (CMCSA), is a European media and entertainment company.
Sky’s CityFibre Deal Puts Pressure on BT
CityFibre yesterday announced that Sky would use its full fibre broadband product on its network starting next year. CityFibre is a UK-based telecom network provider that offers FTTP broadband in the UK.
BT and Sky currently have an agreement under which BT manages all of Sky’s broadband customers. Existing Sky customers will stay on the Openreach network, while new Sky customers will be served by CityFibre in regions not covered by Openreach.
BT’s Openreach stated that it would retain its customer base with Sky. The company added that the development was expected as the UK’s fiber broadband market is getting increasingly competitive.
City Analysts Weigh In
Analysts at Citi noted that Sky’s addition of a second network has been a concern for BT investors, given that Sky is the largest third-party broadband provider on Openreach, with around 5.7 million customers.
However, Citi analysts contended that the financial impact on BT will be manageable, given that Sky will continue its long-term partnership with BT’s Openreach due to the larger size of its network.
Is BT a Good Stock to Buy?
According to TipRanks consensus, BT.A stock has received a Strong Buy rating, based on four Buys and one Hold recommendation. The BT Group share price target is set at 203p, reflecting a 49% increase from the current trading level.
