Hello. Welcome to Company Focus. My name's Aamer Nawid. I'm an analyst at Fat Prophet. So this week, we're going to be taking a look at BT Group. Regular viewers will be aware that a couple of weeks ago, I looked at the key players in the UK mobile telecommunications space, and that last week I took a look at life assurers, companies which amongst other things, operate pension-management schemes.

It flows then quite well that this week we're going to be taking a look at the original heavyweight of the fixed-line business in the UK, BT Group, a company who shares have been hit recently by a pension deficit. Shareholders for BT will no doubt be looking back on 2010 to start the year with some degree of disappointment. As the chart shows, BT shares have been hit by concerns and a battle with the pensions regulator.

The company had thought that it had everything under control with regard to its pension deficit, agreeing to pay £500m-plus annually to address the £9b deficit over the course of the next 17 years. But it seems as though the pension regulator may have its eyes fixed on a shorter timeframe.

Now, let's say, instead of 17 years it becomes 10 years, this is obviously going to impact the ability of BT to maintain its dividend. Hence the share price has reacted accordingly.

Now, markets tend to react or behave irrationally sometimes, and there is a case that this may be one such occasion. The treatment that BT shares are receiving suggests that BT is a pure dividend play. But from where I sit, I'm looking at it more as an operational recovery play, and looking at recent results, the recovery is still on.

So the final accounting quarter of 2009, revenue may have slipped by around about 4 per cent. However, underlying earnings encouragingly were up by 11 per cent. Now, this is very, very positive with regards to beating analysts' expectations. Management also showed great competency with regards to reducing costs. Costs were 13 per cent lower when compared to the same period of 2008.

These were a solid set of results. However, investors remain unconvinced. When you look at BT's performance relative to the sector, it seems as though investors are focusing now more on the constant battling that BT is involved with.

I've mentioned the pensions regulator, but BT is almost constantly embroiled in a battle with the telecommunications regulator Ofcom, because of its dominant network position, BT is more of less the gatekeeper to services in fixed line and broadband for a large chunk of UK households. Any companies wishing to actually offer these services in these BT-only areas, if you like, pay a line rental. The key regulatory issue is the amount of this particular fee.

Now, in addition to this, BT is rolling out its 21st century network, and this has also got Ofcom's attention with regard the availability to its competitors. Ofcom ideally wants BT to open up access. BT will not invest in the network unless the terms are favourable and are right for the company.

BT is also battling with Virgin Media, when it comes to the actual broadband scene. Virgin Media's expanse may not be as broad as BT's copper local route sort of network. However, they do offer the fastest broadband connections in the UK.

Now, BT is also looking to strengthen its own branded broadband offering, and probably looking to rely less on actually charging wholesale rates for the leasing of its network.

In addition to this, they're also trying to crack the broadcasting market, mindful of maybe being left behind as an unbranded infrastructure company. BT's now looking to challenge Virgin Media, Freeview and Sky in this particular space. Sky, of course, is the dominant player here, with its deep pockets and its stranglehold on sports. Wrestling market share may look like an uphill battle, but when you consider that the pay TV review - Ofcom's pay TV review - is up fairly soon, this could result in Sky being forced to charge wholesale rates for sports. So the picture here could change and it could well contribute to BT's earnings in the long run.

Overall, there are many questions left unanswered with regard to the evolution of BT's business. Once these are addressed, I can see this translating into positive share price momentum. The Global Services Divisions has the wind in its sails right now. Profits have been increasing in recent quarters and a new CEO should hopefully mean that previous mistakes aren't repeated.

As far as the pension deficit's concerned, I don't think that's an irrecoverable situation despite the market's reaction. Should the pension regulator shift the goalpost, BT will contest it. Once a resolution has been reached, we could be beyond 2012, the next date for this pension deficit to be reviewed. And if all goes to plan, global economic recovery could be in full swing and the deficit could be significantly below the £9bn mark. We could be looking back at a storm in a teacup, and a missed opportunity.

Thanks for watching. Make sure you tune in again next week.