The BT (LSE:BT.A) share price has surged more than 50% since May, but it has faced downward pressure earlier in the year. The crux of the issue with BT is that many investors and the market as a whole are really struggling to put a value on this telecommunications firm.

So why is this? It’s a combination of high capital expenditure, massive debts, and the promise that one day the company’s operations will be a lot more profitable. Let’s take a closer look at these issues and explore what analysts think will happen next with the FTSE 100 stalwart.

Fibre rollout and growing debt

As of November, BT’s net debt stood at a phenomenal £20.3bn, up from £19.5bn as of March. The increase in debt was primarily driven by scheduled pension scheme contributions of £800m, which were partially offset by cash inflows.

However, growing debts in recent years is largely reflective of BT’s investment in expanding its full-fibre broadband network to 25m homes by 2026 and then 30m by 2030. This huge fibre to the premise (FTTP) infrastructure programme continues to place a strain on its finances.

BT remains committed to its fibre rollout, but the growing debt raises concerns about the company’s cash flow and profitability in the near term. This has been exacerbated by an expensive dividend policy — the dividend yield currently sits at 5.2%.

A well-received plan for success

The company needs to manage expenditure and reassure investors of the long-term value of FTTP. And that’s exactly what Allison Kirkby, who became BT’s CEO in February, has attemped to do.

The new CEO unveiled an ambitious £3bn a year cost reduction plan, which has been well-received by investors. The plan is part of BT’s strategy to streamline operations and achieve significant savings while addressing growing debts and increasing competition in the UK telecoms market.

The cost-saving initiatives focus on simplifying BT’s business structure, reducing operational inefficiencies, and cutting back on unnecessary expenditures. These efforts are designed to offset the financial pressures caused by BT’s massive £15bn FTTP rollout and legacy pension contributions.

The £3bn in proposed savings will also help fund BT’s ongoing transformation into a leading broadband and 5G provider. This is largely considered crucial to improving BT’s cash flow and profitability in the short term, ensuring the company remains competitive while reducing its debt burden.

Economics may relieve pressure, but FTTP is the future

Falling interest rates could be a significant catalyst for BT, especially given its £20.3bn in debt. Lower rates would reduce the cost of borrowing, making it cheaper for BT to service its variable-rate debt and potentially freeing up more cash for reinvestment in its fibre broadband expansion.

Additionally, lower rates could boost consumer spending, encouraging greater demand for BT’s services. This, combined with lower financing costs, could improve profit margins and enhance cash flow.

However, it’s the long-term prospect of a leaner company that has completed its FTTP rollout that appears to really excite analysts — also remember that fibre connectivity will require a much smaller maintenance workforce.

Analysts have an average price target of £2.02 on BT, inferring that the stock’s currently undervalued by almost 30%. It’s a stock I should have bought at £1, but I’m still considering it at £1.57. It’s certainly an interesting proposition.