BT is in rude financial health, with strong short- and longer-term prospects arising from inflation-linked price rises next year and the FTTP investment J-curve in the years ahead.

BT’s traditional investors are however understandably sceptical, leading to interest from non-traditional investors and in alternative structures.

Changing the ownership and/or structure of BT involves significant operational, financial, political and pension fund-related issues, making a change of ownership in whole or part no easy panacea.

Vodafone’s leverage issue continues to drive its strategy and operational focus, as evidenced in its H1 results with solid EBITDA but lacklustre revenues.

Its leverage crisis is severely exacerbated by the prospect of a fibre build in Germany as well as a sizeable headwind to its cable business momentum there. Further sell-downs at Vantage will help and we view the prospects of consolidation as slightly improved, with Spain the most promising option.

Growth in the UK appears to be on hold and the outlook is mixed with VMO2’s notice for early termination for its MVNO, ongoing B2B weakness expected but significant inflation-linked price rises on the cards.

Market revenue growth remained positive in Q3 despite much of the lockdown bounceback dropping out, and is at a significantly higher level than pre-pandemic.

The backbook pricing pressure that has plagued the operators over the last 18 months appears to be finally starting to drop away, allowing strong demand and firm pricing to feed through.

The prospects for next year are also very positive, with firm price increases expected from April, ultrafast upgrades growing in significance, and continued annualisation of backbook issues.

BT had a resilient Q2, beating consensus expectations with revenue growth improving and EBITDA only just declining despite a very tough comparable, and it reiterated its guidance for the full year.

Solid operation trends, strong cost control and inflation-linked price increases leave the company (and ourselves) extremely confident in prospects for next year.

Full fibre roll-out is also going well, with reduced costs and Sky/TalkTalk signing up to a pricing offer which will lead to accelerated adoption from next quarter, and an increasing unlikelihood of them signing up with others.

Market revenue growth bounced back to 4% in Q2, the first positive growth for the sector since 2019 .

Most of the improvement was however temporary sports channel bounceback, with underlying growth still negative.

Prospects are nonetheless healthy, with price increases now regular, backbook pressure annualising out, and ultrafast boosts growing.

BT’s revenue growth bounced back by 3ppts in Q1, and EBITDA growth surged into positive territory for the first time since 2018, enjoying significant bounceback as it lapped the start of the pandemic.

Some aspects of the bounce are temporary, but some business lines are yet to recover at all, and there are positive signs of an underlying return to sustainable growth across much of BT.

Openreach’s momentum continues to grow with much more to come, and VMO2’s switch to full fibre reduces a long-term upside but introduces no significant new downside in our view.

Vodafone’s growth this quarter was a touch disappointing; the annualistion of the COVID hit was a clear boost but no evidence of any tailwinds. The 1.1% growth in the European markets should be the real focus for investors.

We see some evidence of positive initiatives from Vodafone such as its new EVO tariffs in the UK but it still has much to prove on operating momentum, especially in Germany.

There are signs that Vodafone is slow-pedalling in some markets and with demanding EBITDA targets and with leverage still finely balanced, we expect this focus on profitability to continue. The UK may be a special case.

Market revenue growth improved to -1.4% in Q1 2021, a partial recovery being better than at any point in 2020, but still worse than at any point in 2019.

Next quarter the sports channel suspensions will lap out, driving strong (but temporary) year-on-year growth.

Longer-term revenue growth recovery will need backbook pricing pressure relief, which will start in Q2, and demand for ultrafast broadband.

BT ended a very challenging 2020/21 financial year with its worst quarter yet for EBITDA growth, as the third national lockdown impacted mobile, offices, pubs/clubs and installation revenue streams

There are many turnaround drivers ahead though, including price rises, backbook effects annualising, lockdown effect reversals, and full fibre benefits, but returning to revenue growth by the end of the year still looks challenging

The acceleration and expansion of fibre build is very positive in our view, but BT has given no guidance on the future benefits aside from capex returning to normal levels, which is doing it no favours with investors

A move away from premium sport is long overdue from BT, with there having proved to be little strategic, 'halo' or other cross-over benefit to its core broadband and mobile businesses.

BT Sport has managed to dramatically increase its pricing since launch, with little evidence of significant net subscriber leakage, which has driven 'standalone' profitability and allows a partial or full sale.

A sale would not likely cover BT's full losses to date, but a partner could enhance the value of the asset, and an eventual full sale would reduce risk for BT and enable it to fully focus on its broadband and mobile core businesses.