BT Group (LON:BT) and Vodafone (LON:VOD) share prices dropped on Tuesday, dragging the FTSE 100 index. Vodadone stock retreated to a low of 67.35p, its lowest point since August 25th of this year. It has crashed by more than 27% from its highest point in 2023.
BT Group stock, on the other hand, retreated to a low of 124p, 10% below the highest point this month. Other UK telecommunication stocks also pulled back on Tuesday.
The main reason why BT and Vodafone stock prices retreated is a statement by Ofcom on product pricing. The regulator has proposed banning inflation-linked prices increases, which are important for telecom companies in the UK.
The changes will require providers to be clear on when pricing changes will happen. Doing this will prevent them from writing inflation-linked increases into existing deals.
Blimey. Ofcom proposes banning mid-contract inflation linked price rises in mobile and broadband — a dominant pricing structure in the market today— Thomas Seal (@TW_Seal) December 12, 2023
These changes could have a major impact on how British telecom companies operate and price their products and services. In the past, these firms adjust their prices for inflation, which now stands at over 4%.
BT Group shares dropped deeper than Vodafone because it is primarily a British company while Vodafone operates in multiple countries. The UK and Germany are its biggest markets. Therefore, a change of these rules will hit BT Group more.
These changes come at a time when BT and Vodafone are investing heavily in 5G across the UK. They are also allocating funds to broadband infrastructure throughout the country as demand remains high.
With costs rising, the two companies have come up with ways to boost market share and improve profits. Vodafone is merging with Three, a leading carrier owned by Hong Kong’s Hutchison Group.
They are also laying off thousands of workers in a bid to lower costs. BT is aiming to lay off over 55,000 jobs by 2030 or 40% of its current workforce. In May, Vodafone unveiled a plan to fire over 11,000 workers, or about 10% of total workforce.
BT Group and Vodafone are also highly leveraged. Vodafone has over $71 billion in debt while BT has over $29 billion.