It’s only been a couple of weeks since I was looking at BT Group (LSE: BT-A) as a possible buying opportunity. At the time, BT shares were on a slide, having lost a good portion of their early 2021 gains. And now, on Monday, the BT share price slumped by 4.6%, just after it looked like it might be stabilising.
At one point during the day, BT was down 7.8%. And it’s all due to speculation over a possible investment by Sky in Virgin Media O2. The two companies will, if the media stories are correct, form a partnership to provide full-fibre broadband.
As well as offering direct competition to BT Openreach, the deal would also lose BT a major customer — Sky, which currently uses the service. Openreach is among BT’s biggest profit-making offerings too, so such a loss could smart.
But are the fears fully justified, or are we seeing a bit of an overreaction? Well, the new partnership would use O2’s new broadband network. But that currently reaches only around 1.2 million UK homes. BT Openreach, meanwhile, already passes 4.5 million premises.
BT, back in March, told us Ofcom regulations will allow it to ramp up its expansion to three million premises a year. And it has plans to get fibre to 25 million premises by the end of 2026. O2, meanwhile, plans to expand its network over the next seven years, bringing ultrafast broadband to around 14 million premises.
BT share price pressure
What does all this mean, and does it change my stance on the BT share price? Well, it doesn’t seem possible for Sky to simply abandon BT any time soon. And some sources are apparently saying the firm will carry on using BT as well as O2.
Would I be surprised if a major content provider didn’t like being stuck with a monopoly provider and wanted to expand its options? Not at all. The mooted development would bring competition to BT for sure. But did anyone think BT was going to go without competition forever? I certainly didn’t.
In fact, I reckon competition’s good for the sector, and good for investors, long-term. More open competition and less monopoly advantage will surely mean less regulatory interference from Ofcom. And given free rein, I reckon BT would have some strong competitive advantages.
Buying opportunity?
So, were I bullish on BT and planning to buy, I don’t think this latest development would really put me off. I think I’d actually see it as presenting me with a better buying opportunity.
And I’m bullish about BT, at least regarding the company itself. But the BT share price now? I can see it significantly ahead of today’s level a year from now (mind you, I’ve said the same about Lloyds Banking Group for every year of the last decade).
My big problem is still BT’s valuation. When I account for the company’s huge debt and pension fund deficit, I just can’t see it as good value for the risk. So I’m still staying out, even though I’ve a niggling feeling that I might regret it in a year or two.
