UK ISP TalkTalk Grows to 4.22m Broadband Users as York FTTP Build Starts

Low cost ISP TalkTalk has published their latest Q3-2014 (calendar) results, which saw broadband subscribers increase by +15,000 in the quarter to total 4,221,000 (up from +10k in Q2 and the same in Q1). Meanwhile the joint roll-out of their 1Gbps capable FTTP broadband network in York has finally started the build phase. A new Talk2Go app for iOS and Android is also out (i.e. mobile calls over a fixed line).

Elsewhere the providers Superfast Fibre Broadband (FTTC) service reported a strong growth of +67,000 in the quarter to total 308,000 subscribers, which is a huge jump from the +34k added in Q2 and +30k in Q1 (overall 8.5% of the ISPs customers now take FTTC). TalkTalk also somewhat optimistically predicts that Ofcom’s introduction of a related “margin squeeze test” in 2015 could “lead to lower wholesale fibre costs in due course, which in turn will enable us to drive uptake further“.

Sadly TalkTalk didn’t unbundled (LLU) any new telephone exchanges from BT’s control in the quarter, although they did note that some 87% of their customer base now connects via a fully unbundled (MPF) line and that’s up from 86% in Q2. The ISP also saw their BT-based (non-LLU) broadband subscriber’s fall by -7k in Q3 to total 116,000 (slower decline than the -13k lost in Q2).

On the TV front TalkTalk’s YouView (IPTV) based products added +115,000 customers in the quarter to total 1,217,000 and this represents a significant slowing from the steady trend of +185k in both Q2 and Q1, which the ISP said occurred “as a result of our broader trading strategy“. Meanwhile TalkTalk’s Mobile customers increased by +40,000 in Q3 to total 348,000 (up from +24k in Q2) and we expect to see this increase as part of the ISPs increasingly quad-play focused approach (e.g. free mobile SIMs with the Plus TV package).

Dido Harding, CEO of TalkTalk, said:

“We have made strong financial and operational progress in the first-half of the year with accelerating revenue growth, profits up 45% and operating cash flow up 120%.

We are ideally placed as the market moves to quad-play bundling of fixed phone and broadband, TV and mobile. A third of our customers now take phone, broadband and TV from us, 9% take mobile and we recently announced that mobile will now come as standard for all Plus TV customers. This, coupled with our work to continually improve our customers’ experience, has again helped us to reduce churn, which fell to 1.4% from 1.7% a year ago.

We expect to deliver revenue growth of at least 4% and strong growth in EBITDA for the full year. In the second quarter we delivered our strongest organic broadband, mobile and fibre net additions in four years as well as adding more TV customers than the rest of the market put together. We expect this growth to accelerate in the second half which means we will invest more in customer acquisition costs than we anticipated at the beginning of the year. This investment will provide us with a larger customer base to leverage over the medium term, further reinforcing our confidence in achieving our FY17 financial targets.”

Happily TalkTalk continues to be more talkative than Sky Broadband when it comes to their Joint Venture project with CityFibre to deploy a new 1000Mbps capable Fibre-to-the-Premises (FTTP) broadband network in the city of York, which is initially expected to reach 20,000 premises during phase one in 2015.

At the last update in Q2 the ISP confirmed that they had completed the initial planning phase for the first area in York and were beginning to recruit engineers in order to physically build the network. Since then the build has begun.

TalkTalk’s FTTP Progress Update (Q3 2014)

We have made good progress on our fibre to the premise joint venture in York. Fujitsu has been appointed as the infrastructure contractor and we commenced the first phase of digging to build the network out from our points of presence to our cabinets two weeks ago. We are on track to start connecting customers to our Ultrafast product in York next year. We are excited about bringing affordable 1Gig services to consumers and businesses in York and should the trial be successful, we see the potential to build a pure fibre network to 10 million households.

In other news the ISP has also introduced their new Talk2Go app for Android and iOS devices, which allows VoIP calls over fixed line connections. “This will allow customers to make full use of their fixed-line minute allowance on mobile devices and with our Follow Me service, customers can pick up landline calls on their mobile when out and about – in the UK or abroad,” said TalkTalk.

Interestingly TalkTalk also said that “over time we expect to use TalkTalk’s 4G spectrum to build an in premise small cell mobile network that will both improve our customers’ experience and reduce costs“. The ISP has previously hinted at using indoor 4G Femtocell technology on a future router to improve mobile coverage, but that was almost a year ago.

On the financial front TalkTalk reported revenue of £871m on the 6 months running to September 2014, which is up 3.3% on the same period in 2013. Meanwhile churn held steady at 1.4% and the ISPs 6 monthly profit after tax was just £27m (up from £7m in the same period last year). It’s not easy making a profit when you’re fighting at the budget end.