The UK quad play sector is becoming more competitive, and this could be bad news for BT Group plc (LON:BT.A) (BT.A.L), Vodafone Group plc (LON:VOD) (VOD.L) and Sky PLC (LON:SKY) (SKY.L).
Usually, greater competition means either reduced sales or increasingly competitive prices, which can lead to disappointing profit growth. However, I think BT could hold its own against its sector peers even though competition may be on the rise.
A main reason for this is the investment BT is making in its products and services. It has invested heavily in sports rights for example, which I think could help to differentiate its offering against competitors. It also has the potential for synergies from the EE acquisition, which may improve its cash flow and profitability.
Further, BT has the potential to become the dominant quad play operator in the UK (if it is not already). It has a strong position in a range of product areas, and I feel the decision to separate Openreach could lead to more capital being spent on its core operations in the medium term.
I’m also optimistic about Vodafone’s potential. I think its investment in infrastructure in the last few years and the money spent on acquisitions could also bear fruit in the long run. The company’s geographical diversity may also aid its performance, while a loose monetary policy in Europe may create more favourable trading conditions in future.
While Sky is also expanding into new product areas such as mobile and has a strong financial background following its merger with Sky Deutschland and Sky Italia, I feel BT could be better-performing business in the long term. Its valuation has fallen this year and I believe this could be a sound buying opportunity for the long run. Vodafone remains my preferred option in the sector based on its risk to reward ratio, but I still think the BT share price has investment appeal.