Selling off the crown jewels? BT is reportedly in talks to sell a multi billion pound stake in its hugely valuable Openreach division
BT is reportedly in talks to sell a stake in its Openreach division, in what could be a significant development in the UK’s telecom landscape.
It was back in 2006 that Openreach became the infrastructure division of BT Group. Its task is to manage the local network between the BT telephone exchange and the phone socket in the home or business.
Essentially, Openreach engineers are responsible for installing and maintaining the copper and fibre connections throughout the UK, with the exception of Hull.
The principle purpose behind the creation of BT Openreach was to ensure that rival telecom operators had equality of access to BT’s local network.
The division is obliged to provide fair and equal access to the last mile network for all telecom operators and ISPs, although that has been subject to many complaints from rivals over the years.
And now according to the Guardian newspaper, BT has started talks to sell a multibillion pound stake in Openreach. The newspaper said that Openreach has been the subject of rumours of interest from infrastructure and private equity investors for years.
News of the potential stake sale came after BT last week revealed it was halting its dividend payment to shareholders until 2022.
This is to allow the former UK incumbent to invest £12bn to deliver full fibre broadband (fibre to the premise or FTTP) to 20 million homes by the mid to late 2020s.
BT had previously pledged to reach 15 million homes with FTPP by 2025.
What to know more about the history of BT and Openreach? Try our Tales in Tech History article.
The Financial Times meanwhile has reported that potentially interested investors could include Australian bank Macquarie, which has been actively involved in the UK telecoms scene for years, and an unnamed sovereign wealth fund.
However, Reuters reported that a source close to Macquarie said it had not expressed interest in Openreach and was not in talks with BT.
Need for cash
The FT article said that offers of a potential sale of a stake in Openreach value it at £20bn, which is double BT’s current market value.
A stake sale could help BT address its financial issues, job losses, as well as its hefty pension deficit, and the cost of the FTTP deployment over the next decade.
And lets not forget that BT is also going to be facing a bigger challenge after Virgin Media and mobile operator O2 recently announced they are going to merge and create a 50.50 joint venture.
And for the record, BT has previous form in selling off its crucial assets.
Back in the early 2000s, BT was also in a difficult financial position, dealing with a massive pension deficit, and declining revenue from its bread and butter landline service.
BT’s IT services operation (BT Global Services) did help to some extent, but BT almost pressed the self-destruct button when it heeded the advice of financial markets and spun off and then eventually sold its crucial mobile operation (BT Cellnet, later known as O2) in November 2001 in order to bring in some much needed capital.
Strategically, selling its mobile operation hamstrung BT for over a decade, and left the carrier with no real growth engine other than its fixed-line network.
BT finally regained a credible mobile operation when it purchased EE for £12.5 billion in 2016.