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Bumper broadband sales fail to lift BT revenue

A bumper quarter for BT's broadband service failed to lift its overall sales today as fewer customers turned to the telecoms giant for traditional landline services.

BT said 253,000 customers were added by companies using BT's network in the three months to September 30, nearly double the 169,000 gained last year, and 45% - or 114,000 - of these connected using BT's own broadband service.

The group's broadband television service BT Vision added 24,000 customers in the quarter - an increase of a third - bringing the total to 520,000. But so far only 50,000, less than 10%, have taken up its subscription Sky Sports service, which was made available in August.

The strong growth in broadband and BT Vision was not enough to lift group revenue, which fell by 3% to £4.98 billion as call and landline sales were hit by an increasingly competitive marketplace.

However, underlying pre-tax profits were up 13% at £496 million, beating City expectations. The results prompted BT to raise its forecast for full-year underlying earnings to £5.8 billion, up from an expected £5.6 billion.

BT returned to profit earlier this year after driving down its costs, mainly through major job losses. It continued to make labour savings in the second quarter by employing fewer contractors and third parties.

The company also raised line rental and upped the cost of day time calls in September, but said both are still cheaper than its main rival Virgin.

BT has set targets to return to revenues growth by 2012/2013, and hopes services such as BT Vision and broadband will help it achieve its goal.

Chief executive Ian Livingston said the roll out of BT's high speed fibre-based broadband, BT Infinity, would be key to lifting sales. It currently has 38,000 customers, increasing by around 4,000 per week.

Mr Livingston said while Sky Sports had only been taken up by 10% of BT Vision customers, the product was a "long term" investment and had more services to come, including 3D and high-definition.

BT saw sales slide across all divisions, except for Openreach, its business serving other communications providers.

Its Global Services division, which provides managed networked IT services for business and Government organisations, was down 2%, again reflecting a decline in UK calls and landline revenue.

But the order intake for the quarter was up to £2.1 billion, from £1.4 billion a year earlier, after the company signed a number of new contracts, including a three-year extension to its agreement with the Ministry of Defence.

BT's wholesale arm saw revenues drop 5%, which included a one-off regulatory charge of £19 million after Ofcom ordered landline providers to cut fees on 0845 and 0870 calls. The group is appealing this ruling.

BT's upgraded forecast for underlying earnings saw shares in the FTSE 100 Index move ahead 3%.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said the company has begun to deliver across a number of strands, including broadband roll-out and in Global Services.

But Mr Hunter warned: "BT operates in a number of markets which are notoriously competitive, whilst intense pressure on its fixed line offering remains."

Last week, BT announced major reforms to the way it calculates its yearly rises in pension payments.

It said pension payouts would rise in line with the Consumer Prices Index measure of inflation, rather than the Retail Prices Index.

The move was a blow to its pension members but a relief to the company, as it shaved a mammoth £2.9 billion off its gaping pension funding deficit, cutting its shortfall to £5.2 billion.