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Broadband price wars will send BT into a damaging retreat as customers defect to cheaper rival networks, the company’s former head of investor relations has warned.
Carl Murdock-Smith, now a telecoms analyst at Citi, scrapped a recommendation to buy BT shares and cut the bank’s target price for the shares by 44pc as he predicted that BT’s Openreach arm would fall into long-term decline.
Openreach owns the network that connects most homes in the UK, whether they are customers of BT, Sky or TalkTalk, as well as other broadband retailers.
In recent years upstart rivals such as CityFibre and Gigaclear have borrowed billions to fund the construction of millions of new fibre optic lines across the country meant to compete against BT’s network.
Many of these businesses have struggled to make rapid inroads into the market and are under financial stress but are now pricing aggressively in an effort to win customers, putting pressure on BT and its boss Allison Kirkby.
Mr Murdock-Smith, who led BT’s investor relations between 2015 and 2017, told clients he expected Openreach revenues to go into reverse this year.
This would be the first decline since 2019 when Openreach, BT’s most profitable division, was hit by Ofcom price caps. Revenues have grown steadily since then thanks to the boom in providing fibre broadband.
The Citi analyst said Openreach revenues may now decline for several years as broadband providers continue to move to rival networks.
Openreach lost 585,000 connections in the first nine months of its financial year, with the decline accelerating in the three months to December. The company blamed “moderately higher competitor loss”. It said the vast majority of lost customers were in areas where the company has not built ultrafast fibre lines.
Citi’s intervention wiped as much as 6.5pc off BT shares on Tuesday before they finished the day 2.7pc down, wiping £429m off the company’s market valuation. Mr Murdock-Smith said the shares should be worth 112p, a further 24pc lower than their price on Tuesday.
Last year, Sky struck a deal with CityFibre, Britain’s biggest so-called alt-net, to offer broadband connections on the company’s network.
BT cut annual revenue forecasts late last year and said in January that sales had fallen in recent months.
It is under pressure to trim costs and this month met with Sunil Bharti Mittal, the Indian billionaire who last year became the company’s biggest shareholder.