Downgrading BT Group to No Moat From Narrow; Fair Value Estimate of GBX 190

BT Group is the UK's incumbent telecom operator, owning the most wide-reaching wholesale fixed-line network (Openreach) in the country. Years of regulatory discussions and tensions caused BT to severely underinvest as it sought a regulatory framework that ensured acceptable returns on capital. The approval of the Equinox plan, which sets wholesale pricing for communication providers in Openreach’s network for the next 10 years, seems satisfactory for BT and has caused fiber-to-the-home investments to soar. BT aims to cover 25 million homes with FTTH by 2026, or 90% of the country, up from less than 10% in 2019. However, network duplication is increasing in the UK as alternative networks like CityFibre or Community Fibre have taken market share from Openreach, gaining 500,000 lines in 2024.