Thursday, May 24th, 2018 (8:31 pm) - Score 4,313

Reports indicate that Openreach, the “legally-separate” network access division of UK telecoms giant BT, is currently courting informal interest from private equity and infrastructure investors. A mix of inbound proposals are allegedly being considered, such as minority and majority stake purchases.

According to Bloomberg’s sources, the deliberations are said to be at an early stage and BT could just as easily decide not to pursue them. Recent estimates from Berenberg and RBC Capital Markets have put Openreach’s value at anywhere between £12bn to £25bn and its national fixed line network would be an attractive target.

The fact that private equity firms currently seem to be lining up to plough bags of money into fibre optic builds, as well as BT’s desire to return their business to more positive growth, would appear to lend some weight to the current market speculation.

On the other hand such a move would have to be weighed against the usual bugbears, such as how any deal might impact Openreach’s current position with respect to telecoms regulation and their voluntary agreement with Ofcom. Not to mention the still unknown quantity of Brexit and BT’s desire to maintain some control over their national infrastructure.

The question of how to correctly value Openreach is another issue, particularly given how fast the broadband market is changing, including the inevitable challenges of shifting from copper to fibre optic lines over the longer term. Equally it perhaps won’t hurt BT’s share price to be seen talking about such a move, even if the talks don’t end up amounting to anything.

The industry rumour mill also suggests that BT could be considering a sale of EE’s mobile towers, which seems unlikely but then these are interesting times. In the meantime Openreach will continue with their plan to roll-out G.fast to 10 million UK premises and Gigabit capable FTTP to 3 million premises by the end of 2020, with an ambition to push the latter to 10 million by around 2025.

Naturally BT has not commented on the market speculation. In any case investors may first wait to see what happens with both Brexit and the on-going Future Telecoms Infrastructure Review, which is due to report this summer. The review is expected to suggest new approaches to help boost investment in “full fibre” and future 5G Mobile networks.