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BT defends soccer spending: 'We haven't overpaid'

BT has defended its lavish spending on exclusive soccer rights to show prime European soccer games, telling CNBC that it did not overpay and arguing that customers will get a better deal than they are currently receiving.

"We had an envelope, we came within that envelope and we generally believe we can monetize this and it makes commercial sense," Tony Chanmugam, chief financial officer at BT told CNBC Monday.

"Our (financial) guidance remains unchanged as a result of doing this, so we don't think we've overpaid."

BT will pay £897 million ($1.2 billion) for a three-year deal to show Champions League soccer from 2015 exclusively.

With the deal, the 168-year-old former state telecoms monopoly has beaten Rupert Murdoch's dominant pay-TV operator BSkyB to the rights as well as the U.K.'s biggest free-to-air commercial channel, ITV.

(Read more: BT Sport helps lift BT results)

BT will pay £299 million ($478 million) a season and will be the sole provider of Champions League matches on Tuesday and Wednesday nights. BT is paying more than double the £400 million BSkyB and ITV are paying for the current three-year contract.

Chanmugam added that customers are likely to get a better deal than currently given by rival Sky.

"We think we'll be able to provide the customer an alternative choice. Right now the customer has to pay £40 a month to watch Sky Sports. We think we can provide a competitive offering at a much lower price," he said.

"In terms of what we're doing in sport, the free offerings continue and what we have said is we will charge for Champions League. But the reality on that charging is, it could well be that the charge is zero if you take bundled services."

Analysts at Nomura were more concerned, cutting their outlook on BSkyB to "reduce" from "buy". They said the deal finally shows the scale of BT's
ambition and its willingness to overpay.

The deal will enable BT to broadcast games from Europe's finest soccer clubs, featuring the likes of Barcelona, Manchester United, Real Madrid and Bayern Munich.

It will also show the UEFA Europa League for three years, Europe's second-tier soccer competition. BT already has some rights to show 38 English Premier League games but more are currently available on Sky.

A research team at Citi, led by Thomas Singlehurst said the clear losers for the deal were BSkyB, ITV and the U.K. consumer.

"There is no doubting that the big winner is ultimately UEFA/the football clubs, all of whom will see significantly enhanced revenues," the bank said in a research note on Monday.

(Read More: BT trumps Sky to show Champions League matches)

"It is also true that regardless of whether it made sense to walk away – which we think it did – both ITV and BSkyB wanted to retain these rights and their loss will have an impact on both their business models. It is also worth considering the U.K. consumer for whom access to top-tier football content will potentially become more expensive from 2015/2016."

Citi added that it still has a "buy" rating on BSkyB, but cut its outlook on ITV to "neutral"

"On BSkyB, while not welcome, we think this is handle-able and would see significant weakness as an opportunity to buy the shares," it said. "We think ITV is probably the bigger casualty of BT's Champions League rights acquisition and lower our rating to neutral."

BT reported second-quarter profit at the end of October, the first set of results from the company since it officially launched its new sports channels in August. Figures were ahead of forecasts with strong demand for broadband and sports TV getting the group off to a good start under new Chief Executive Gavin Patterson.

The group said consumer revenue was up 4 percent, its best performance in 10 years, and group revenue was flat - the first time it has not contracted in more than four years. Adjusted profit before tax was up 2 percent to £609 million, it added.

BT shares fell 2 percent as the trading session opened on Monday. Shares of BSkyB plunged 9 percent with ITV falling 3.1 percent.

By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81

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