BT Group’s fibre take-up hits 41%, but free cash flow falls 59%

BT Group plc has reported adjusted EBITDA of £4.097 billion for the six months ended September 30, 2026, up 1% from the previous year, as its Openreach full-fibre network continued attracting customers. The British telecommunications company said full-fibre take-up reached 41%, with more than 10 million premises connected by October. However, the November 5 results also revealed a 59% decline in normalised free cash flow to £236 million and an increase in net debt to £21.006 billion.

The contrast reflects the financial complexity of BT Group’s transformation. Its investment in fibre infrastructure is creating a larger network with strong customer demand, but the benefits must eventually translate into higher recurring cash generation. Meanwhile, competitive pressure, legacy voice-service decline, pension obligations and working-capital movements continue to influence the group’s financial performance.

BT Group reported revenue of £8.753 billion from continuing operations, compared with £8.7 billion a year earlier, while reported pre-tax profit increased by 12% to £1.071 billion. Adjusted service revenue declined by 1% to £7.685 billion, highlighting the difference between modest headline growth and the underlying performance of recurring connectivity services. The figures are presented on a continuing-operations basis following the decision to classify BT Group’s International division as a discontinued operation.

Why is BT Group’s full-fibre network attracting more customers despite broadband competition?

Openreach expanded its fibre-to-the-premises footprint to 24.1 million premises by the end of September 2026, adding approximately 1.2 million during the half-year period. The group expects to reach its target of 25 million premises by March 2027. Its wholesale full-fibre connections reached 9.9 million at the half-year mark and exceeded 10 million in October.

The take-up rate reached 41%, supported by more than 1.1 million net full-fibre additions during the six months. This is important because the economics of telecommunications infrastructure depend on how extensively the installed network is used. A network with substantial geographic coverage but limited customer adoption can struggle to generate attractive returns, while rising utilisation helps spread fixed costs across more paying connections.

Openreach reported average broadband revenue per user of £17.80, up 7% year on year. The increase reflected inflation-linked pricing, greater full-fibre adoption and customers selecting higher-speed products. These developments suggest that network upgrades can support revenue quality as well as subscriber migration.

Nevertheless, Openreach recorded 366,000 broadband line losses during the half-year period and expects approximately 800,000 losses across the financial year. The distinction between full-fibre connections and total broadband lines is essential. A customer migrating to a faster network can improve the service mix, but competition from other providers can still reduce the overall number of lines served.

Why did BT Group’s normalised free cash flow decline by 59% despite higher EBITDA?

BT Group generated £236 million in normalised free cash flow during the first half of its 2027 financial year, compared with £569 million in the corresponding period. That represents a decline of £333 million, even though adjusted EBITDA increased from £4.060 billion to £4.097 billion. Management attributed the reduction primarily to higher cash outflows associated with working capital and related programmes.

Cash generated from continuing operating activities declined by 10% to £2.567 billion. Capital expenditure decreased by 5% to £2.282 billion, reflecting reduced network-build activity. In isolation, lower investment expenditure might be expected to support cash generation, but the working-capital pressures more than offset the benefit during the period.

The result illustrates why EBITDA cannot be treated as a substitute for free cash flow. EBITDA measures operating performance before several significant financial costs, while cash flow reflects the timing of receipts, payments and capital investment. A telecommunications company undertaking substantial infrastructure upgrades can report stable or rising EBITDA without producing an equivalent improvement in cash available for debt reduction and shareholder distributions.

BT Group continues to target approximately £2 billion in normalised free cash flow for the full financial year, excluding the effects of its TalkTalk transaction. Achieving that target will require a substantial second-half contribution relative to the first half. Investors will therefore need to assess whether the weak cash performance was largely a timing issue or evidence of more persistent pressure.

Can BT Group’s cost-saving programme improve margins as legacy revenue declines?

BT Group’s transformation programme delivered £312 million of annualised cost savings during the six months, taking cumulative savings to approximately £1.7 billion. The company is targeting £3.5 billion of gross annualised savings by the 2030 financial year, with cumulative implementation expenditure of approximately £800 million reported so far. These figures demonstrate significant progress, although savings must be assessed alongside the costs of achieving them.

Lower staff costs, operational simplification and network efficiencies contributed to the modest increase in adjusted EBITDA. BT Group also reported a reduction in energy consumption across its network and fewer Openreach repairs, indicating that some of the benefits come from operational improvements rather than purely financial restructuring. Such efficiencies could strengthen cash generation as fibre deployment matures.

The difficulty is that savings are being achieved against a backdrop of pressure on traditional services. Adjusted service revenue declined by 1%, partly because of the continuing reduction in voice revenue. Consumer broadband average revenue per user decreased by 3% to £40.80, reflecting competition and the decline of legacy voice services.

BT Group must therefore generate enough growth from fibre, mobile and business connectivity to offset the erosion of older revenue streams. Cost reductions can protect margins while that transition takes place, but they cannot indefinitely compensate for weaker customer economics. The most convincing improvement would combine higher full-fibre adoption, stronger service revenue and measurable cash-flow growth.

How do BT Group’s £21bn net debt and pension obligations affect its investment capacity?

Net debt increased from £19.966 billion at March 31, 2026, to £21.006 billion at September 30. BT Group said the increase reflected scheduled pension contributions and the payment of its full-year dividend, partially offset by cash generated from trading activities. The rising debt burden makes the conversion of infrastructure investment into free cash flow increasingly important.

BT Group also reported a gross pension deficit of £3.2 billion under IAS 19 accounting rules, down from £4.2 billion at the end of March. Separately, its latest pension funding valuation identified a deficit of £2.7 billion as of June 2026. These are different measures calculated for different purposes, and they should not be treated as interchangeable estimates of the same liability.

The company has agreed a revised pension funding arrangement involving zero-coupon bonds and additional support intended to improve the scheme’s long-term financial position. Such arrangements can change the timing of cash requirements, potentially providing greater flexibility for the operating business. However, pension obligations remain part of the wider assessment of BT Group’s balance-sheet resilience.

The company increased its interim dividend to 2.50 pence per share from 2.45 pence. Maintaining shareholder distributions while reducing debt and funding infrastructure requires disciplined capital allocation. A stronger full-fibre business can eventually support all three objectives, but the latest first-half cash figures show that the transition remains incomplete.

What could TalkTalk and the Verizon joint venture change for BT Group?

BT Group acquired TalkTalk out of administration on October 5, 2026, helping preserve service continuity for approximately 2.5 million UK customers. The transaction remains subject to regulatory review, and the company has not yet fully incorporated its effects into the published financial outlook. Investors should therefore avoid assuming that the acquisition will deliver immediate additional cash flow or earnings.

The planned joint venture with Verizon Communications is another material element of BT Group’s restructuring. The arrangement is expected to complete in the second half of calendar 2027, subject to the relevant conditions. BT Group has classified its International operation as discontinued for financial reporting purposes, with prior-period figures restated to support comparison.

Together, these developments show the company’s increasing focus on UK connectivity and network infrastructure. That concentration could simplify operations and capital allocation, but it also increases the importance of competitive conditions in the domestic telecommunications market. The financial outcome will depend on execution, regulatory approvals and the performance of the remaining businesses.

BT Group’s full-year guidance remains unchanged, including adjusted EBITDA of approximately £8.1 billion to £8.2 billion and normalised free cash flow of around £2 billion excluding TalkTalk. The medium-term target is approximately £3 billion in annual normalised free cash flow by the end of the decade. The investment case ultimately rests on whether fibre adoption and cost savings can produce that improvement while reducing balance-sheet pressure.