BT is reportedly in talks about the sale of a larger stake in Openreach to finance the company’s expansion of full fiber broadband.
Openreach was founded in 2005 when BT separated its infrastructure division from the retail business and became a legally separate company in 2017 after a comprehensive market review by Ofcom.
Competitors had argued that the ownership model meant that Openreach made decisions that favored its parent company and that it had little incentive to invest in a full fiber optic infrastructure, preferring instead to “sweat” its copper plants.
Thanks to Openreach̵
In the years since, political and market forces have made BT a priority that is committed to reaching 4.5 million properties by March 2021, 10 million by the mid-2020s, and 20 million by the end of the decade. The latter two goals depend on a favorable regulatory framework and government support.
However, the FT is concerned that BT does not have the financial resources to fund this rollout. The company’s stock price has dropped dramatically in recent years, confirming last week that the dividend will be suspended to focus on infrastructure expansion.
While investors would generally accept such a suspension if it meant long-term gains, BT has reportedly had talks with private investors, including Macquarie Capital, to value Openreach at £ 20bn. This would free up the value of the Openreach division for investors, bless BT stocks, and help finance investments in infrastructure that would generate long-term profits.
Should a deal be made, this would mean a significant change in BT’s strategy. Before the Ofcom review in 2015, BT’s competitors demanded that Openreach be completely outsourced so that third parties can invest. And since Openreach became independent, there have been no efforts to co-invest between BT and other providers like Sky, TalkTalk and Vodafone.
A number of major acquisitions and investments have been made in the UK in recent years. CityFibre was acquired by private equity firms for £ 538m in 2018, while KKR acquired a majority stake in Hyperoptic last year.
Macquarie itself recently won a £ 627 million bidding war for KCOM through its Macquarie Infrastructure and Real Assets (MIRA) fund. MIRA has assets worth several tens of billion euros and is an important investor in the telecommunications infrastructure. The company has invested in Arqiva in the UK and owns TDC – the largest telecommunications company in Demark.
BT and Macquarie were asked to comment.