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Openreach slaps another 5 million premises on top of FTTP connection target, expects to pay 'minimal tax in the UK' over next few years

We'll hire 7,000 to get it done by 2026, says boss

BT's Openreach has promised to bring FTTP connectivity to 25 million premises by the end of 2026, an increase of 5 million against the previous target.

To meet its loftier goal, the telco pledged to increase its FTTP build rate from 3 million premises each year to 4 million. This, company boss Philip Jansen said, will result in the direct creation of 7,000 new jobs.

Speaking on BT's quarterly conference call, Jansen claimed the company had renewed confidence it would be able to scale up its build numbers thanks to a tax break for full-fibre builds, which he described as a "really good move," as well as regulatory reforms introduced in Ofcom's Wholesale Fixed Telecoms Market Review (WFTMR), which limited pricing controls on new fibre-based products.

The super-deduction, introduced in the 2021 Budget, allows some companies to claim 130 per cent capital allowances in the first year on qualifying plant, machinery and equipment investments.

We expect to pay minimal cash tax in the UK over the next couple of years... we've previously been paying £200m to £300m... We will also have a very big tax loss that we'll be able to carry forward, which could amount in tax terms to another billion pounds or so...

Simon Lowth, CFO at BT, said on the call that the company expects to "pay minimal cash tax in the UK over the next couple of years. And we've previously been paying £200m to £300m pounds.

"We'll qualify for the government's tax super deduction that they announced. So that gives us a big tax allowance tax deduction."

He added that "after these two years, we will also have a very big tax loss that we'll be able to carry forward, which could amount in tax terms to another billion pounds or so.

"So as you can see, that tax benefit does fund a significant proportion of this incremental FTTP build."

Other factors mentioned by the execs included solid take-up of FTTP products by consumers and businesses, as well as the outcome of the recent 5G spectrum auction. In March, BT's EE group won 80MHz of low-band 700MHZ spectrum (with 20MHz reserved for downlink access only) and 120MHz of coveted mid-band access, at a cost of £452m. EE currently has the largest 5G spectrum holdings of any UK carrier.

Jansen claimed the increased build-out would help bolster the UK's recovery from the pandemic. "It will allow us to include more rural communities in our FTTP footprint, and also creating up to 7,000 new jobs and delivering value to our shareholders while also supporting the government's full-fibre ambitions."

Of the extra 5 million premises added to Openreach's build-out plans, 1.5 million are set to be in rural locations. Countryside homes and businesses are expected to account for 4.7 million of the 25 million total premises to receive FTTP by the end of 2026.

Remote control

These will not include the 20 per cent of UK premises (around 6 million) in the remotest parts of the country, however, where FTTP connectivity is largely contingent on the amount of government subsidies available.

Kester Mann, director of Consumer and Connectivity at analyst house CCS Insight, commented that the announcement was a vindication of the recent Ofcom reforms.

"[This] follows Ofcom's crucial recent decision not to impose caps on the wholesale prices fibre operators can charge for access, for at least 10 years," he said. "BT has always maintained that its fibre targets were contingent on the right regulatory conditions that would enable it to make a fair return. It is now living up to its word."

Clive Selly, CEO of Openreach, said: "We've already proven that we can build ultrafast and ultra-reliable Full Fibre broadband to millions of homes and businesses at pace, and without compromising on quality. We're also encouraged by the demand we're seeing – having just connected our one millionth customer. Allied to our experience and innovation in scaling up the build, this gives us confidence that we can reach 25 million premises by December 2026 at world-class cost points."

How exactly will they fund it?

The BT Group aims to fund the additional 5 million premises through a joint venture akin to that employed by Dutch telco KPN.

In 2020, KPN inked a deal with pension fund APB to fund its full-fibre rollout. Collectively, the two firms committed to spend €1bn on accelerating the Netherlands' FTTP network expansion, which KPN claimed would result in the country achieving 80 per cent coverage by 2026.

Openreach aims to replicate that model in the UK, although Jansen did not mention the names of any prospective external partners.

This is in addition to the "minimal" levels of UK corporation tax it will pay over the next several years, thanks to the government's "super deduction."

Effective from April 2021 and expected to run until 2023, this tax break was conceived by the Treasury to stimulate business investment in UK manufacturing and infrastructure following the pandemic.

It allows eligible companies to obtain either 130 or 50 per cent write-offs on allowable investments, which, at the higher rates, works out to a 25p tax break for each £1 spent. The Office for Budget Responsibility has estimated the regime will result in a 10 per cent increase in business investment.

But it will come at a cost. Figures from the Exchequer estimate the proposal will result in a revenue reduction of £12.25bn during this fiscal year alone, peaking to £12.69bn in the 2022-2023 financial year. ®

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