Telecoms group BT yesterday posted its second straight quarter of higher core earnings - and vowed to maintain growth in consumer broad-band despite fierce competition from new entrants.
The former UK telecoms monopoly posted underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of £1.39 billion for the three months to June 30, up from £1.36 billion in the year-earlier period.
"The numbers are all pretty much what the market was expecting, not much excitement one way or the other," said ABN Amro analyst Stuart Gordon.
The company is counting on new services like broadband Internet access to counteract falling fixed-line revenues, but competition in the already crowded sector is heating up.
Carphone Warehouse, France Telecom's Orange and satellite broadcaster BSkyB all offer bundled packages that include "free" broadband access.
"There are some new guys coming on the block," said BT chief executive Ben Verwaayen. "We do terrific with our offer, so I don't worry about single suppliers coming on the market."
BT's market share for net broadband additions was 30 per cent in the first quarter, down from 31 per cent in the fourth quarter.
The group said it was responsible for 8.7 million wholesale broadband connections at the end of June, with more than 40 per cent of all UK homes now subscribing to high-speed internet.
"It's very crowded in the socalled free market," Mr Verwaayen added.
"Thirty percent after the launch of all those things, I don't think many people would have laid a bet on that."
Standard & Poor's cut BT's credit rating one notch to BBB+ on Wednesday to reflect increased competition facing the company, which will increase its financing costs by about £1 million per month.
BT's TV service, BT Vision, is set to launch in the autumn, combining a Freeview receiver with video-on-demand, catchup viewing of recent programmes, and a digital video recorder. It announced on Wednesday that it would carry TV and film programming from NBC Universal, along with a video download service for PCs. BT's total revenue rose three per cent to £4.86 billion, with its global services unit up four per cent to £2.16 billion. BT Retail revenues fell two per cent to £2.07 billion, with traditional revenues down eight per cent and "new wave" revenue up 31 per cent.
Mr Verwaayen added: "Our international business is expanding strongly and we won more than 200 new customer accounts outside the UK in the quarter.
"Our first quarter results underpin our confidence in our ability to continue to grow our revenue, underlying earnings, earnings per share and dividend this year."
"We think investors will start to focus more on 2008 forecasts, where the 'free' broadband versus costs balance starts to bite," Morgan Stanley analyst Christopher Fremantle said in a research note.
Meanwhile, France Telecom yesterday warned it would not reach its organic full-year sales growth target of two per cent as it posted a modest rise in half-year underlying earnings, in line with forecasts.
Finance Director Gervais Pellissier said progress had proved slower than expected, and he did not expect a solid rebound before the end of the year.
In spite of a costly rebranding of its TV, Internet and business services under Orange, the mobile brand, France Telecom is struggling to catch up with smaller, more nimble rivals.