BT misses targets as the broadband battle gets tough

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BT Group shares plunged almost 10 per cent after its third-quarter results yesterday, as falling sales in its wholesale division led the group to miss analysts' forecasts.

The fixed-line telecoms group ended the day as one of the worst blue-chip performers after what analysts called a "mixed" statement. Jonathan Groocock, analyst at Investec, said: "BT's numbers aren't that bad, but the market is really jumpy at the moment. Any negative news and it reacts excessively. On a normal day, BT should have only marginally underperfor-med the market."

The group reported a slight gain in revenues over the three months to the end of December, rising 1 per cent to £5.15bn. The numbers were £100m shy of forecasts, dragged lower by a poor performance in its wholesale operation.

The underlying decline in the division continued a trend of recent quarters as it reported that the market had become "highly competitive". The wholesale business, which accounts for 17 per cent of BT's revenues, provides a range of products for companies including ADSL broadband.

A spokesman for the group said the unit's revenues had been expected to fall, as BT was forced to cut prices and companies started migrating away from its hardware. Also in the division, BT has suffered adecline in calls on its premium rate lines. The spokes-man added that he expected further falls over the next few quarters.

Mr Groocock said: "While wholesale is where the underperformance occurred, it isn't that important to profits as the business is relatively low margin. Yet there are encouraging trends in Global Services, and BT Retail's growing share of broadband subscribers."

Revenues in the global services division grew by 6 per cent to £1.96bn, driven by higher margins on mat-uring contracts and its continued cost-cutting. Operating profits rose from £3m in the corresponding period in 2006 to £33m in the three months to last December. Matthew Williams, analyst at Citigroup, said the brand had "finally delivered margin expansion", which rose 10.9 per cent.

BT's retail performance remained strong – the group added a net total of 160,000 retail residential broadband customers in the third quarter. It remains the biggest broadband supplier, with 35 per cent of customers connecting via its network at the end of last year.

BT's chief executive, Ben Verwaayen, said: "We have delivered our 23rd consecutive quarter of year-on-year, earnings-per-share growth".

However, BT is understood to be rethinking its Fusion strategy, launched in 2005, which was designed to merge household handsets and mobile phones.

BT's rival Sky Talk rep-orted it had won its one millionth telephony customer yesterday. The group said the news confirmed the trend that customers want all their home entertainment and communications services in one package.