Fitch: BT's Continued Sports Investment Intensifies Competition

Mon Nov 11, 2013 11:00am EST

(The following statement was released by the rating agency) LONDON, November 11 (Fitch) BT's aggressive purchase of live broadcasting rights for European football intensifies UK triple-play competition and indicates a longer-term commitment to its pay-TV strategy, Fitch Ratings says. The UK pay-TV market is one of the most competitive in Europe and BT's entry is driving up the price of sports content. With its latest deal, BT is showing that it is willing to buy attractive content to monetise its ongoing GBP2.5bn investment in its fibre network, and to support its UK consumer business. The EUR1.08bn acquisition of exclusive live rights to show all Champions League and Europa League matches in the UK for three seasons starting in 2015/16 follows BT's successful bid for some English Premier League football rights in June. Despite its spending on fibre and sports content, BT still has good headroom in its credit profile. Its FFO adjusted net leverage is currently around 2.0x, compared to the 3.0x level that would be incompatible with its 'BBB' rating. But for any positive rating action, we would need to be convinced that BT can sustainably improve its position in the highly competitive UK triple-play market while maintaining underlying revenue growth and stable margins. Increasing its TV customer base and take-up of its fibre broadband connections are important if BT is to establish a sustainable position in the triple-play market for television, internet and telephone services. BT's recent results for the quarter ending September 2013 shows that the launch of its sports channel has been well received by customers and its fibre strategy is gaining traction. Continued savings from cost cutting initiatives in its core UK business are helping fund the push into pay-TV. We continue to believe that the chances of BT offsetting the cost of these rights purely through the addition of new TV customers look slim. It should, however, help BT defend its overall broadband market share and the investment is likely to be partly covered by the increase in incremental revenue in BT's overall UK business. There is also a strategic benefit from BT's re-positioning in the UK triple-play market and the increased pressure brought to bear on BT's key triple-play competitors, Sky ('BBB+'/Stable) and Virgin Media ('B+'/Stable). We believe the key risks remain around execution and BT's appetite for further content acquisition, especially the English Premiership rights when they come up for renewal in 18 months' time. Contact: Damien Chew, CFA Senior Director Corporates +44 20 3530 1424 Fitch Ratings Limited 30 North Colonnade London E14 5GN Owen Fenton Associate Director Corporates +44 20 3530 1423 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: BT Group plc here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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