The Week Ahead: BT third quarter profits expected to edge higher

BT is locked in a battle with regulator Ofcom over the status of its network arm Openreach.

BT is locked in a battle with regulator Ofcom over the status of its network arm Openreach. Photo: BT - Credit: Archant

Telecoms giant BT will report on third-quarter trading this week as it battles with communications regulator Ofcom over plans to force it to legally separate its Openreach network arm.

Ofcom warned in November that it would trigger formal proceedings with the European Commission to order legal separation of Openreach after it said BT’s plans to satisfy competition concerns fell short.

Openreach develops and maintains the UK’s main telecoms network, used by telephone and broadband providers such as Sky, TalkTalk and Vodafone as well as BT Consumer.

But Ofcom stopped short of forcing a full break-up and sale of Openreach and added that it remained ‘’open’’ to further proposals from BT for a voluntary separation of the division.

There is unlikely to be any update on the talks with Ofcom in BT’s quarterly results on Friday, but analysts said it would continue to be a headache for the group until it is resolved.

HSBC’s telecoms experts said: “We expect that 2017 will provide a conclusion, resolving an overhang for the stock. Most likely, in our view, is for BT and Ofcom to reach a compromise within the first half of the year.”

BT chairman Sir Mike Rake said in an interview earlier this month that the group was “hopeful to reach a solution”.

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The firm’s third-quarter update is expected to show underlying pre-tax profits nudging up to £930m, from £928m a year earlier, and a further boost to customer numbers from its acquisition of mobile phone company EE last year.

It comes after better-than-expected second-quarter earnings, when BT added 63,000 new customers, with EE numbers rising by 280,000.

HSBC analysts said: “We continue to expect strong operational performance. In particular we look forward to the full-year results in May for a detailed update of the initial mobile cross-selling into the BT base.”