BT Group (LSE:BT.A) has been struggling for years now, and it doesn’t look as if things will improve soon. The price of BT shares is at its lowest in a decade, and in order to make business progress, its costs are mounting. Unfortunately, shareholders have many concerns for its future, including its 5G implementation, debt, competition and lack of growth.
Nokia to replace Huawei
Last week the news broke that BT signed a deal with Nokia to replace China’s Huawei as its 5G supplier. Huawei’s involvement in the UK telecoms network has been the subject of considerable controversy and political concern. This worry stems from worsening US-China trade relations and geopolitical ructions. It led the British government to question Huawei’s involvement in critical infrastructure with concern for national security.
Now the group must remove all traces of Huawei, but replacing it with Nokia’s kit will be expensive and slow. The UK government has given BT until 2027 to complete the full replacement, with the cost likely to exceed £500m.
Ericsson is the biggest provider of 5G equipment in Europe and some investors question why Nokia was chosen over Ericsson. Both companies are already working with BT in a smaller capacity, and Ericsson may well win more work going forward. Nevertheless, some shareholders are concerned that Nokia’s equipment is not as advanced as Ericsson’s, which in turn is not as advanced as Huawei’s. Huawei has Chinese government support, which keeps it ahead of the game. The other two are reliant on winning contracts to keep them progressing in R&D. Could this contract choice set BT back even further in the race to be a leading 5G provider in Britain? Like everything just now, it remains to be seen. The differences between Nokia and Ericsson may well be minimal, but faith in BT’s future appears to be at an all-time low.
The importance of 5G
5G has been hailed as an exciting new foray into super-fast internet speeds and an ultra-connected nation. It’s expected to help businesses embrace the Internet of Things and encourage smart management in areas such as emergency response and transportation. It can help with automating production and improving an interconnected world in wildly futuristic ways. Last year a Chinese surgeon carried out the world’s first remote operation thanks to 5G. In time it’s hoped this could allow specialist surgeons to remotely operate on anyone, anywhere in the world. 5G will also speed up the implementation of self-driving cars.
I think it will be very disappointing if the UK is left behind when other countries are rapidly improving in these areas. A case in point is South Korea, which began implementing 5G a month before us, but while it has now upgraded 98% of its 4G base stations, the UK has upgraded less than 10%.
Do BT shares offer value?
BT has a price-to-earnings ratio of 5.6, no dividend yield and earning per share are 17.5p. Its share price has been on a downward trajectory for the past five years. Unfortunately, I think this shows it’s a struggling business, facing an ever more challenging future. My colleague Alan Oscroft thinks BT shares may be worth buying, albeit only if you’re a risk-taking investor. I think the BT share price will remain volatile (and down) for a long time to come, therefore I’m in no hurry to buy BT shares.
The post BT shares stay flat on Nokia 5G link-up news. Would I buy? appeared first on The Motley Fool UK.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020