The UK's biggest telecoms group BT has suspended its dividend and said it would spend billions more on faster fibre broadband connections, as it prepares to meet the challenge posed by the merger of two of its biggest rivals.
Shares in the former monopoly fell as much as 12% to an 11-year low today, as investors reacted to losing their payout and the potential rise in competition.
BT said the saving from suspending its dividend until 2021/22 would see it through the expected financial crash caused by the coronavirus pandemic.
Covid-19 is leading to lower revenue from sports customers, reduced business activity and more cautious spending from multinational customers.
It will also help fund a £12 billion plan to upgrade its legacy copper network to full fibre. If the conditions are right, BT said it could reach 20 million premises by the mid to late 2020s, five million more than it had targeted.
As rivals Telefonica and Liberty Global announced plans to merger their British units to build a stronger challenger, BT also set out plans for a new five-year programme to modernise the business.
Chief Executive Philip Jansen said the coronavirus pandemic, which has seen a surge in the use of mobile phones and data, had brought BT's national leadership in telecoms into the sharpest focus in its history.
While upgrading the network had been important before, it was now "a matter of extreme urgency", he stated.
Therefore, the dividend - one of the biggest on the London stock exchange - had to be pulled.
"This was a tough decision, but although hard on shareholders, a necessary one so that we can allocate capital for value-enhancing investments," he told reporters.
"It will also allow us to manage confidently through the coronavirus crisis," he added.
The CEO said the impact of the pandemic would only become clearer as the economic consequences unfolded over the next 12 months.
"Due to Covid-19, BT is not providing guidance for 2020/21, at this time," he added.
BT's shares have fallen more than 40% so far this year.
BT, which has cut its dividend twice before, is the latest in a list of companies to scale back payouts to weather the coronavirus crisis, including Shell, the FTSE's biggest payer.
Jansen said the proposed merger between Liberty's Virgin Media and Telefonica's O2 underlined the value of combining mobile and fixed services in a single package, a journey BT started by buying mobile network EE four years ago.
"Personally, I think the industry needs consolidation so it's a sensible move," he said. "It follows our strategy."
He said BT was focused on its own network upgrade and on talks with the government and regulator Ofcom about the conditions it needed to go-ahead.
"We are confident of getting the regulatory and policy enablers to support our investment," Jansen said. "Clearly in this environment the political and regulatory will to encourage investment is very, very high."
Analysts at Jefferies said scrapping the dividend was unexpected - the market had expected a 50% cut - but had to be offset against the new fibre target and cost cutting programme.
They said the debate was now whether investors shared BT's confidence the fibre regulatory negotiations would play out favourably, or whether the company had committed itself too early to a plan when the terms had not been finalised.
BT said the efficiency programme would cost £1.3 billion and deliver annualised benefits of £2 billion by March 2025 as it switches off legacy programmes and deploys new technologies.
It expects to resume the dividend at 7.7 pence per share.
The company said its adjusted revenues for 2019/20 fell 3% to £22.8 billion and core earnings dropped 3% to £7.9 billion, both meeting market expectations.
