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BT weighs up getting into bed with rivals to boost Britain's broadband

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BT engineers - Chris Ratcliffe/Bloomberg
BT engineers - Chris Ratcliffe/Bloomberg

For BT boss Philip Jansen, the fog has finally cleared.

After a much cheaper auction of 5G mobile connectivity, regulatory clarity on the profits it can make from full-fibre broadband, a much-improved pension picture and a smaller bill for Premier League TV rights, the odds have finally stacked up in his favour.

The former WorldPay boss has taken the opportunity to scale up his full-fibre broadband roll out by 5m homes and businesses to reach 25m by December 2026.

The accelerated push comes with a bold play on his broadband builder Openreach - but it is not what part of the City was hoping for.

Rather than selling off a stake in the infrastructure giant, Jansen will allow Openreach to invest in a joint venture alongside an outside investor to help deliver his bold ambitions.

It means BT can share the financial burden of upgrading the nation's broadband, without ceding control over its most valuable asset.

"In the market out there, there is so much appetite for investing in this kind of infrastructure," Jansen says. "One of the reasons we are doing this process is so I hope we get lots of inbound enquiries."

He may find the suitors come flocking. Investors have stepped up their interest in telecoms infrastructure projects over recent years because of their ability to deliver stable long-term returns.

American buy-out firms, sovereign wealth funds and dedicated infrastructure funds have been swarming around the sector as upgrades to broadband networks gather pace.

Canadian pension fund OMERS is reportedly plotting to seize nearly a third of CityFibre, as the broadband builder funnels £4bn into upgrading 8m premises to full-fibre by 2025.

Nearly two years ago, private equity giant KKR bought a stake in broadband rival Hyperoptic, prompting the exit of George Soros' Newlight Partners and the Abu Dhabi sovereign wealth fund, Mubadala.

BT has also drawn interest from deep-pocketed Arabian kingdoms.

Saudi Arabia's sovereign wealth fund - the near-$400bn Public Investment Fund - was circling BT last summer.

The Telegraph reported in June that BT and PIF even held talks about issuing new shares to help fund the UK's full-fibre rollout.

Yet, welcoming the PIF into the fold would prove highly politically sensitive given the kingdom's links to the death of Washington Post journalist Jamal Khashoggi.

A better reflection of how BT might forge its joint venture can be found across the Atlantic ocean.

Jansen pointed to the recent partnership between Dutch telecoms operator Royal KPN and the pension investor APG as an example of BT's intentions.

APG - which manages pensions for Dutch government workers- is paying €440m (£379m) for a 50pc slice of a joint venture, which will count for half of the €880m equity.

The partnership plans to roll out full-fibre to 910,000 Dutch homes and businesses by 2026, covering around 10pc of the country on top of KPN's plan to reach 65pc by 2025.

Nick Delfas, the Redburn analyst, said the off-balance partnership has "clear lessons" for how Openreach could approach such a deal.

A similar move would allow Openreach to reach 4m premises a year "with no equity injection and no new debt".

He signalled that a UK pension fund, such as the Local Pensions Partnership with £20.4bn assets under management, would be an option to target.

The UK Infrastructure Bank would also pose an alternative, he argued, but warned that it may attract accusations of "favouritism" from rivals "if it funded the Openreach venture above competing ones".

A more controversial move would be to get into bed with a competitor.

Could BT encourage Sky's American owner Comcast - the broadband giant with 26.5m US customers - to plough funds into a partnership that would help protect its competitive edge in the UK.

That could prove appealing as Sky looks to offer faster full-fibre packages to its customers. Yet it already has options to choose from.

The pay-TV giant has long been linked with a potential wholesale full-fibre deal with CityFibre.

Liberty Global - the owner of BT rival Virgin Media - has also hinted at creating a full-fibre network with partners that could lead to wholesale deals once Virgin's £31bn merger with mobile operator O2 is approved by the competition authorities.

With Dana Strong, the former Virgin Media executive and friend of Liberty boss Mike Fries, recently becoming the boss of Sky, the prospect of wholesale deal between the two companies has increased.

Liberty Global may even be tempted to sink funds into a joint venture with Openreach, although such a move would not sit comfortably with its plans to mount an aggressive challenge to BT across broadband and mobile.

Jansen played down the prospect that Openreach would not deliver the extra 5m without a partner, saying he was "delighted" that they do not have to, should it prove unworkable.

Yet after dangling the idea, investors would soon cool if a partner failed to materialise.

HSBC analyst James Britton says the move will come as a "disappointment to the bulls," with a fibre joint venture "unlikely to move the needle" on BT's share price despite reducing "balance-sheet stress".

Credit ratings agencies, who have previously fretted over BT's multiplicity of expensive commitments, were this time unconcerned over increasing investment, in the wake of new tax breaks, a lower-than-expected bill for 5G airwaves, and an improving pensions outlook.

Sebastien Cieniewski of Moody’s said the bigger full-fibre rollout "will significantly increase capex spend".

But he added: "This does not weaken the group’s credit profile as the initiative will provide the company with a competitive edge over other fibre network providers and will be partly funded by the group’s improved liquidity.

After years of speculation an Openreach sell-off now appears firmly out of reach.

But if Jansen's new fibre partner can really help him "build like fury" then maybe those calling for a radical overhaul of the 41-year-old firm will come around to his thinking in time.

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