More on BT
BT: undertakings to Ofcom
BT has made a number of legally binding undertakings to Ofcom. BT appears likely to succeed in putting an end to the current regulatory uncertainty, and in avoiding a breakup. However the price has been very heavy regulation of a new business unit (Access Services) which will provide access products - more importantly unbundled local loops and wholesale voice and ADSL. BT has also agreed to not reduce prices on wholesale ADSL until at least 1.5m lines have been unbundled (preventing it from deterring unbundling by making wholesale ADSL cheaper).
It is questionable whether, as Access Services is compelled to deal with other BT Group companies exactly like other customers, there is any real benefit to shareholders in not spinning it off - in fact a stand alone Access Services business is likely to face less regulation.
The ending of uncertainties is positive, as is the adoption by Ofcom of a solution proposed by BT, rather than alternatives which would have been more damaging to BT.
At 225p, BT is trading at a prospective PE of 11× and a historic price/FCF and is yielding 5%. It is likely to lose market share and the fixed line voice market is declining, but its current strategy has so far been successful with offsetting declines with growth else where.
Random picks: Aga Foodservice | BOC | Burren Energy | Glaxosmithkline | Inchcape | Matalan | Smiths | Go-Ahead Group | Shaftesbury | Cadbury Schweppes