Originally Posted by Neil_Harris:
“Excellent analysis.
It sounds positive to me, how do you find it and will it get sky thinking?”
I think it's a mixed picture - and it's very early days in terms of BT's CL so it wouldn't be sensible to draw any long term conclusions whatever these results had said.
The revenue growth and customer growth look strong. Of the two, the revenue numbers are ultimately much more important - as noted above customers are only of value if they generate revenue. However customer numbers are still of interest as there will be upselling opportunities and they can be a "leading indicator" of revenues in the sense that new customers often come in on offers which later expire leading to higher revenues in the future.
However, profits are down - which means the higher revenues have been more than offset by the higher costs of CL. There's also the question as to how much of the annual CL cost has hit the P&L this quarter - I imagine the amount charged is less than 25% - if so the cost to be charged in the remaining 3 quarters will be more than 75%.
But even if profits are down it doesn't mean it's a bad investment decision because BT will be thinking long term and it's the nature of many new projects that losses have to be incurred in the short run before profits can be generated longer term.
In the short term, BT's profits are undoubtedly lower due to having the CL (and Sky's profits are higher due to not having the CL). But that's only the short term - it's far too early to make any proper judgements re the longer term - which is what ultimately matters - we'll have to see what happens going forward.
As for Sky - Sky's results out last week show that they haven't been damaged (at least not yet - still early days) from losing the CL and profits are up, benefitting from the cost saving. Of course that saving is only the £80m per year they were previously paying for CL - if they had paid the required £300m+ per year to outbid BT and retain CL their profits would have taken a hit with that additional cost in their P&L.
The issue for Sky is slightly different - it's the knock-on effect - yes they can lose the CL without damage but it then pushes up the importance of the PL to them even more - which of course forced them to pay that much more for the PL than would otherwise have been the case. For Sky it's next year's P&L account which will be the interesting one - their profits surely have to fall significantly next year when their P&L has to take an extra £632m hit from PL rights.