Markets were not impressed by the latest results from BT. But is this a company that can withstand the great waves of creative disruption that are set to wash upon the technology shore.
If data is the new oil, is BT like a digital oil company?
Or, in the age of big data, can it flourish?
Last year, The Economist ran a much talked about article suggesting that data is the new oil. Not all agree. Some say it is the new asbestos. What is clear, is that in the data age, companies that provide the infrastructure to enable that data to be transmitted are vital. But not all will make it. Will BT be a winner or loser?
The first company I ever bought shares in was BT. This would have been 1997, and I paid 442p. I sold when shares were at around 600p, and cursed in the months that followed, as the share price passed 1,000p.
A few years later, during the bursting of the dotcom bubble, the share price collapsed, falling to less than 75p at one point. As I write, shares are a fraction below 220p.
Investing, we are told, is a long-run game. So how might an investor, who like me had bought into BT in 1997 had faired if they had taken the long term idea to heart and held?
The loss would not have been as bad as the tale of the share price suggests. In November 2001, BT spun off its MMO2 arm. Shareholders were given one MMO2 share for every share they had owned in BT.
Four years later, Telefónica bought MMO2, or O2 as it was then called. At that time shareholders were offered 200p a share.
According to my maths, 200p plus the current BT share price of 220p, is 420p, meaning shareholders would have made a small capital loss.
But the whopping BT dividend, currently around six per cent, at a time when interest rates have been so low, would have still provided a nice income.
I think it’s important to take this long-term perspective. Over the last 20 years or so, the market BT operates in has been totally disrupted. Fixed line phone calls are so 20th Century. From a consumer point of view, BT is about broadband, exclusive sports content, and a set-top box which is a lot cheaper than a subscription to Sky.
BT is also about carbon fibre infrastructure and now, of course 5G - its Open Reach network, the B2B end of the business.
The UK malaise
It’s just that the UK is a disappointment. In these Brexit times, when the UK’s big opportunity is to emerge as kind of Singapore of Europe, it has a communications network that creaks when we are lucky. If you take the train out of London towards the north, by the time you reach the M25, mobile network coverage is already wavering. Internet access can be super-fast in some areas, awful in others – it’s hardly like Singapore, where you can make calls and have fast access to the internet from the underground transport system.
It’s part of a deeper British malaise, look beyond digital and our transport system feels just as backward.
Very little of this is down to BT, but some of it is, Besides the company seems to symbolise all these negative aspects of the UK economy. The UK needs 5G urgently. If BT is the best company to provide it, then shares may be a good long-term income source, perhaps with some capital growth thrown in. But if BT drags its heels, an exasperated regulator may lose patience, that’s the big danger.
The Cellnet disaster
Cellnet used to be BT’s mobile network division, and it was hugely expensive, the money BT threw at this area had a lot to do with the troubles that caused the collapse in its share price earlier this century.
It changed the name to MMO2 which was spun-off, became O2, became a part of Telefónica, and is now massively profitable. In short, O2 begun to justify BT’s investment long after BT had given up all interest in the business.
BT’s timing in the build-up and spin-off was about as bad as it could be.
Now it owns EE, can it get the timing right this time?
Competition and the big plus
I’ll leave you with a plus and a worry.
The worry relates to potential competition, there’s Liberty, and the threat that Facebook and Alphabet may move on its turf.
The strength lies with its R&D. I was moved to buy shares in BT after I had a meeting with some of its R&D employees at its facility in Martlesham. They were super bright, had lots of bold ideas but moaned about the regulator, ‘never letting us do anything.’
20 years plus later, BT Research is still based in Martlesham, and it still employs super-bright people.
It is also engaging with tech start-ups via its BT Infinity Awards.
If it can build upon that, it may just become a company that disrupts the market with innovative solutions, rather than a firm which is itself disrupted.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees