UK telco BT (BT.A) has kicked-off a sports broadcasting battle that rivals any top-of-the-table Premier League clash. Offering free access to its newly-unveiled sports package to broadband customers is a crunching tackle on British Sky Broadcasting (BSY), which has had its own way with Premier League football for years. Yes, ESPN, and Setanta before it, have drifted in and out of the game but BT's is a far more serious challenge to the satellite broadcaster.


Last year, BT snapped up the rights to screen 38 'live' Premier League games a season as it unveiled a new sports channel, fronted by Jake Humphrey, poached from the Beeb. At a cost of £738 million, analysts struggled at the time to see how the group could reap a return. Now we know.


BT is offering its Premier League footie as a way of tempting new subscribers to its broadband and superfast fibre services. As Bank of America Merrill Lynch analyst Wilton Fry points out, 'BT is doing the mirror image of what Sky has done to BT since 2005 by offering telecom services at near marginal cost to make its pay TV service as sticky as possible. BT’s aggressive bundling of content is a tactical move within a larger strategic push for voice and data revenues.'


The market likes both the proposition and today's financial results which have sent the shares jumping over 10% to 304.8p, their highest in over five years.


Berenberg analysts called the UK telco's move a 'masterstroke, with the 'levers available to enable BT to at least recoup its outlay on content.'


Ultimately, BT needs to win back customers that have gone to rival service providers.


Interestingly, fibre subscriber sign-ups have been giving off encouraging signs. Net adds to its 'Infinity' superfast service last year totalled 721,000 in the 12 months to end March, but a quarterly breakdown shows the accelerating trend, 150,000 in Q1, 160,000 Q2, 200,000 in Q3 and 211,000 in the last three months of the year. This helped margins on an earnings before interest, tax, depreciation and amortisation (EBITDA) increase dramatically.


But perhaps more important that these figures is BT's guidance on future free cashflows (FCF), upping its 2014/15 FCF steer by £100 million, from £2.5 billion to £2.6 billion.


Analysts had been forecasting nearer £2.4 billion, and BT is confident that FCF will get better the following year, flagging the probability of 'growth', implying better than £2.6 billion, again well beyond the £2.5 billion pencilled in by City number-crunchers.


Yes, it still has a debt-laden balance sheet, £7.8 billion worth plus a £5.9 billion pension deficit, but it now looks like the group not only has a sensible repayment strategy, it will also throw off the cold hard currency to fund it.


That eases the implied strain of future dividends which equate to a 3.6% 2014 yield and growth in the payout of 10% to 15%. BT can finally get its head out of the cost cutting books and start looking ahead to growth, and that's a substitution that will have investors cheering from the stands.

Issue Date: 10 May 2013