BT to invest $3 bln in UK super-fast broadband

BT to invest $3 bln in UK super-fast broadband

By Kate Holton, Reuters

Britain's BT will suspend its share buyback to invest 1.5 billion pounds ($3 billion) in rolling out super-fast broadband to 10 million homes by 2012, enabling services such as video conferencing and interactive gaming. But its shares fell as some analysts questioned whether it was "investing in the unknown", while its rivals also slumped after investing heavily in BT's current copper-wire network.

The programme will be Britain's largest ever investment in super-fast broadband, to deliver speeds of up to 100 Megabytes per second. "Now is a good time to make a bold step," new Chief Executive Ian Livingston told journalists on a conference call. "It is important to invest in the long term, and with the very strong take-up of broadband (we felt that) now was the time to enhance that infrastructure."

BT will make the fibre network available to other Internet service providers, such as Carphone Warehouse, BSkyB and Tiscali, through wholesale agreements to ensure the broadband market remains competitive. Alternatively, those ISPs could decide to place their own fibre within the BT network to secure greater pricing control.But their shares suffered on the stock market on Tuesday after previously investing in the current copper network.

Most analysts welcomed the announcement and Morgan Stanley said it would help BT compete with cable group Virgin Media which is set to offer higher speeds. BT made it clear it would only push ahead with the fibre plan if industry regulator Ofcom sets the terms so it can get a decent return on its investment. "The funds required are extremely large and companies need confidence that risk-taking can be appropriately rewarded," BT said in a statement. Ofcom and UK minister the Business Secretary of State both welcomed the announcement, citing it as an example of the market delivering the required communications infrastructure.

SUPER FAST

Under their plans, the fibre will be linked to the street cabinet -- and in some cases, such as the Olympic village for the 2012 Games -- directly to the premises. Homes linked to a fibre-to-the-cabinet network will receive initial speeds of up to 40 MB but BT expects this to increase to 60 MB with new technologies. Those on a fibre-to-the-premises network will see speeds of up to 100 MB.

"We want to work with local and regional bodies to decide where and when we should focus the deployment," Livingston said. "Our aim is that urban and rural areas alike will benefit from our investment". BT said the plan adds around 1 billion pounds to its existing expenditure plans for fibre deployment. It expects the initial investment will result in around 100 million pounds of incremental capital expenditure in each of the 2008/09 and 2009/10 financial years, with the remaining incremental spend of 800 million pounds being spread over the subsequent three years. BT will suspend its share buyback programme with effect from July 31, given the strategic priority of the broadband investment, but said it remains committed to its dividend. Shares in BT were down 4.4 percent at 193 pence at 1200 GMT, in an overall lower market. Shares in Carphone Warehouse were down 7.5 percent, Tiscali down 6.7 percent and BSkyB down 3.3 percent.

Some analysts were also not convinced. "There is no clarity on what, if any, economic return BT will be able to get on this incremental investment, and much hinges on Ofcom," Collins Stewart analyst Mark James said.

"Whilst Ofcom has shown a willingness to encourage investment and a recognition that the commercial environment for fibre is uncertain, we're still surprised that BT is investing into the unknown."