BT Group PLC (LSE: BT.A) shares dropped over 7% yesterday and are down an additional 1.3% today following Sky’s decision to sign a broadband deal with rival CityFibre, which will impact BT Openreach’s wholesale business.
UBS analyst Polo Tang estimates this move could reduce BT’s free cash flow by around £120 million annually in the medium term.
“Sky, BT/Openreach’s largest customer, spends over £950 million per year, and we expect it to sign at least one more deal,” Tang notes.
Additionally, he highlights that Virgin Media O2 is reportedly revisiting merger discussions with TalkTalk, BT Openreach’s second-largest customer, which spends £850 million annually.
“UK broadband infrastructure competition is intensifying,” Tang warns, citing other risks for BT, including the outcome of a £1.3 billion class action lawsuit over landline overcharging and pricing pressures in its consumer division, where alternative network providers are offering broadband at a 25-40% discount.
