U.K. broadband incumbent BT Group's efforts to return its enterprise division to growth could be hampered by moves from competitors, analysts said.
The telecom firm's enterprise revenue fell to £1.35 billion in the June quarter from £1.51 billion in the previous quarter. BT attributed the decline to the impact of the coronavirus pandemic and broader economic pressure.
BT's main broadband rival Virgin Media, however, saw its enterprise revenues rise, thanks to an 8.7% year-over-year increase in small and home-office-based customers.
Though BT has taken recent steps to return to growth in the enterprise segment, analysts said increased competition from Virgin Media and newer entrants will continue to present challenges.
New enterprise moves
BT announced several changes to its enterprise business on the day it announced its June-quarter results, including appointing Vodafone Group PLC veteran and current chief of African telco MTN Group Ltd., Rob Shuter, as CEO of its enterprise unit. Shuter is expected to join by the end of the 2020-2021 financial year.
BT also highlighted a new outreach program for small and medium-sized enterprises offering flexible billing and subsidies and introduced a new converged enterprise broadband service dubbed Halo for business that combines fiber internet, mobile and phone lines.
However, the company warned the pandemic will impact future quarters due to a rise in insolvencies and delays in large business orders.
BT offered a full-year outlook for its 2020-2021 fiscal year, saying it expects adjusted revenue to be down 5% to 6% and adjusted EBITDA of £7.2 billion to £7.5 billion.
Competition
Though Paolo Pescatore, a tech, media and telecom analyst at independent analysis firm PP Foresight, said "there are plentiful opportunities given the company's network assets," he noted that competition is taking its toll on BT's enterprise business.
"BT will hope a new CEO to the division will change its fortunes," Pescatore said.
Arguably the biggest challenge comes from Liberty Global PLC-owned Virgin Media's proposed joint venture with Telefónica SA's U.K.-based cell carrier O2. Just as BT did with its own acquisition of mobile network Everything Everywhere Ltd. in 2016, the new entity will seek to take advantage of cross-selling opportunities from the merger. Virgin Media outlined these benefits when it said eight out of 10 customers subscribe to another mobile operator and that half of O2's 33 million customers are looking for bundled services from either company.
The other competitors are similarly ramping up enterprise broadband offerings. For instance, Vodafone in June announced a six-month free broadband offer for SME customers. It also launched a second broadband line package in August, aimed at capitalizing on the surge in people working from home during the pandemic.
Comcast Corp. unit Sky Ltd. in late July also revealed plans to launch a business broadband offering targeted at small businesses, while affordable broadband provider TalkTalk Telecom Group PLC recently has grown its enterprise business, too, adding 400 customers from April to the end of June.
BT still has a lot of "fight left in it," but is facing strong competition over converged services from Vodafone and from alternative network providers such as CityFibre and Gigaclear Ltd. on a regional level, said Camille Mendler, chief analyst for enterprise services at tech analysis firm OMDIA. Looking ahead, the emergence of consolidated entities is going to "make life harder" for the incumbent, she said.
"BT's Halo for business product is brilliant and exactly what the market needs," Mendler said. "BT is doing what the enterprise market is asking for, but the problem is that competitors are also speaking in the same way."
New enterprise CEO
While Mendler thinks BT's decision to bring in a CEO from outside of the company could prove to be a positive decision, other analysts are not so sure.
"The change in CEO here brings with it incremental 'reset' risk," Exane BNP Paribas analysts said in an Aug. 3 note.
Notably, Gerry McQuade, the current CEO of BT Enterprise, has been at EE and BT for more than a dozen years, leading integration efforts among segments that ultimately combined to form the enterprise business in 2018.
"BT is arguing that they can return to sustainable EBITDA growth in FY22 — we remain skeptical and believe the outlook for the Enterprise division is extremely bleak ... driven by growing competition," Exane BNP Paribas analysts said.
