Investing.com -- Shares of BT Group (LON:BT) PLC fell sharply on Tuesday, following Sky's long-term partnership with CityFibre.

At 5:48 am (0948 GMT), BT Group was trading 6.7% lower at ￡135.82.

“Sky has been the largest third-party ISP on BT’s Openreach network, with around 5.7m customers. The shift to dual wholesale partner strategy by Sky has been a long-term concern for investors,” said analysts at Citi Research.

This dual vendor strategy, while aimed at diversifying suppliers and accelerating the deployment of fibre networks, introduces potential risks for BT Group. Citi Research analysts have flagged that this could impact BT's dominance and revenue generation from its Openreach division.

The agreement with CityFibre, which currently covers around 3.8 million homes and aims to expand to 8 million, includes areas where Openreach might not have an economic incentive to build.

CityFibre's plans include targeting up to 1.3 million homes in rural areas under the government's Project Gigabit program—areas where Openreach may have previously been less inclined to invest.

“Sky will use CityFibre in areas that Openreach doesn’t currently cover, which implies the immediate exposure for Openreach is limited to 2.5m homes,” the analysts said.

However, Citi added that while Sky’s move may lead to a marginal increase in competitive pressure on Openreach, the financial impact is considered manageable. The impact of losing some market share is mitigated by the current pricing structure and ongoing up-selling opportunities for higher-speed products.

Citi Research notes that the CPI linked pricing model will provide Openreach with the flexibility to adjust and compensate for potential revenue losses.

Despite these adjustments, Citi Research has maintained a cautious outlook on BT Group, reflecting on risks such as pension fund liabilities, network overbuild, competition in the quad-play market, and regulatory challenges. Their ￡2.00 target price for BT Group shares remains subject to these risk factors.

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