BT rockets to a high on cheers for its free TV football deal

Telecoms giant says it can keep boosting profits and dividend in war with BSkyB

BT’s audacious gamble to offer free Premier League TV football to its broadband customers has had a thumbs-up from the City, which yesterday sent the telecoms giant’s shares up more than 12 per cent to a six-year high.

Ian Livingston, chief executive, cheered shareholders as he declared that he can keep increasing profits and the dividend next year despite his TV price war with BSkyB.

Mr Livingston convinced the City that his strategy can work after holding an investor day and unveiling a 2 per cent rise in annual pre-tax profit for the year to March 2012.

Analysts said his decision to offer 38 Premier League football games a season for free to broadband customers paying as little as £10 a month is a big threat to rivals such as Sky and TalkTalk.

The share price surge added £2bn to BT’s stock market value, making the company worth £24bn.

Annual sales fell 5 per cent to £18.25bn as regulation kept pushing down on prices, but Mr Livingston cut costs faster. Underlying sales were flat in the last quarter – a significant milestone.

Bank of America Merrill Lynch said it was impressed that the telecoms giant was upgrading its forecast for free cash flow in 2015 “despite BT’s heavy investment in BT Sport”.

Many analysts believe BT has deep enough pockets to challenge Sky’s dominance of pay-TV after Setanta and ESPN failed.

Berenberg bank said the free TV sport move was a “masterstroke” and could help to win more broadband customers.

“This is an aggressive move by BT and will help the company to defend its existing broadband base,” declared Espirito Santo bank, noting that BT wants to stop rivals such as Sky picking up broadband customers.

Sky, whose shares tumbled 6 per cent on Thursday when the free TV move was first announced, attacked BT for using sport as “a marketing gimmick to promote another product” amid suggestions that it devalued TV rights.

But Mr Livingston hit back. “Sports rights holders will be very pleased about bringing sport back to the people for free, rather than insisting on them paying £70 a month,” he said. “They are talking about sports rights holders. We talk about customers.”

Some analysts remain sceptical about BT’s £1bn-plus TV foray, which includes coverage of other sports such as rugby and wrestling as well as football.

Enders Analysis warned that “the BT Sport product is simply not strong enough to cause any but the slightest erosion of Sky Sports’ residential customers”.

Sky has 116 live Premier League games against 38 for BT.

Mr Livingston has also not yet agreed wholesale agreements with Sky and Virgin to sell BT Sport to their subscribers, and he said “we don’t know” when such deals might be reached.

Enders claimed BT Sport could face “annual direct operating losses in the order of £250m-£300m”.

BT still looks in reasonable health. The pension deficit jumped to £4.5bn but that was not as bad as analysts feared and the dividend is up 14 per cent at 9.5p.

The shares closed up 33.8p at 309.5p.