BT Dominates UK Telecoms Industry

Equity analysts believe BT’s ownership of both fixed-line and wireless networks provides it with a unique set of network assets

Allan C. Nichols 13 December, 2018 | 7:26AM

The United Kingdom communications market is different than that of other European nations. In 2002, BT (BT.A) sold its wireless operations to avoid bankruptcy after the tech and telecom bubble burst. That single decision made the UK very different from other countries, where the incumbent operator and often one or more others owned both fixed-line and wireless networks. As a result, no UK carrier has pushed convergence of fixed-line and wireless telephony in the country. Convergence has been a major trend across Europe in recent years, led by Spain.

However, in 2016, BT acquired EE, the largest wireless operator in the UK, which once again created an integrated company. BT has been very slow to push a converged service until very recently, as it has been tied up with integration efforts, dealing with Ofcom's, the UK telecom regulator, 10-year industry review, problems across other parts of the business, and management turnover. Still, we think that owning both assets clearly strengthens BT's moat – it’s sustainable competitive advantage over peers. Having both networks provides a unique asset set and distinguishing feature that the other operators can’t match. 

Competitors Can’t Catch BT

We believe BT’s ownership of both fixed-line and wireless networks provides it with a unique set of network assets. Communication networks are expensive to build and maintain. Thus, the more subscribers on a network, the lower the cost of the network per individual customer. This makes scale very important.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BT Group PLC99.11 GBX-0.89
Vodafone Group PLC107.34 GBX0.73

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Allan C. Nichols  Allan C. Nichols

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