TalkTalk bidder asks Openreach to waive UK wholesale broadband charges
The lead bidder, Epiris, for part of the debt-ridden TalkTalk Group, which is now in the final stage of its turbulent efforts to dispose of both their consumer broadband ISP business and the PXC (PlatformX Communications) wholesale business, has reportedly asked network supplier Openreach (BT) to waive several months of payments to support a rescue deal.
Just to recap. Private equity firm Epiris have been attempting to secure a deal for TalkTalk’s wholesale-focused PXC business since Octopus Investments retreated from an earlier bid. Epiris is also in the middle of a separate £1bn+ takeover bid for London-listed business ISP Gamma Communications (here), which if successful could potentially share substantial financial synergies with PXC.
Meanwhile the TalkTalk Group, which is being advised by PJT Partners, are understood to have appointed Alvarez & Marsal (A&M) to help dispose of both their consumer and wholesale businesses using a pre-pack administration process. TalkTalk’s consumer business is also strongly linked to PXC’s wholesale products, thus any deal for one side of the business or the other would need a complementary agreement.
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However, the focus today is on Epiris’ bid for PXC, which is said by Sky News to be facing a challenge due to PXC’s now imminent requirement for paying a significant bill to Openreach for provision of their UK network services (broadband, Ethernet etc.) to the TalkTalk Group. Epiris is now understood to have asked the BT Group to “waive or write off several months of payments” from PXC to Openreach – said to be worth over £100m – in order to allow their rescue deal to complete.
Network access provider Openreach would naturally be well within their rights to say no, although much will depend upon the structure of what Epiris has proposed. Not to mention that Openreach will need to consider how much it might lose were the Group to collapse early next week. Ultimately none of this is Openreach’s fault and they’re being somewhat asked to carry the can for another company’s poor management.
On top of this there are likely to be some political pressures, which stem from the fact that PXC are a key supplier to thousands of vulnerable customers as well as hospitals, doctors’ surgeries and other areas of Critical National Infrastructure (CNI). But the reality here is that, even if the Group did collapse, a solution is almost certain to be found that keeps c.1.6 million customers connected. The question is more over the survival of everything else.
As for TalkTalk’s consumer business, the expectation is currently still that existing investor Ares Management will take ownership of the business, although Vodafone and Opus Broadband are understood to still be engaged in talks. But as mentioned earlier, the outcome of that is very much linked to PXC and both share the same problem with payments to Openreach.
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The next few hours or days will be pivotal.
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
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It’ll be interesting to see if Openreach agree to this.
Sets the precedent for others not to pay their bills.
Personally I think it’s wholly wrong if Openreach pick up the tab for years of TalkTalk mismanagement giving them an advantage over others who do in fact pay their bills.
Let’s see how this plays out I guess…
I think that the parent board would have to agree to a write-off of this magnitude, since it would almost certainly require formal shareholder/market disclosure.
Any business other than BT (due to the regulatory framework it operates under) would likely only agree to a waiver/write-off of payments in exchange for an equity stake in the new combined operation. That stake would be quite sizable given the scale of the requested write-off in comparison to the price being offered for the existing business.
I wonder how much it would cost BT plc, if BT Wholesale and BT Operate had to pick up the pieces, if PXE fell into administration without a pre-pack?
Would it be greater than the 100+ million of grace that Epiris are requesting?
Sorry, senior moment, I meant BT Networks. BT Operate ceased to exist a long time ago of course.
If Openreach just let TalkTalk and PXC collapse they will not loose many customers as they’ll all likely move to a new provider also using Openreach.
Openreach will benefit from migration fees, new minimum contract terms and likely a higher price per line. BT Wholesale will gain a lot of new customers, so will Vodafone and Sky.
But can any of them cope with processing the amount of migrations, new router shipments etc? Defiantly not.
Leased line could be a much bigger problem. Especially as this would require much more planning. Business may have to sign new 3 year contracts with new providers. I doubt there is a simple process for switching provider of a leased line compared to switching SOGEA/FTTP.
Whilst Openreach may have regulatory and operational responsibilities to help maintain service continuity they (or BT) surely they would not be liable for other PXE responsibilities.
The physical Openreach network would continue and they can’t pull the plug, which is why they are in this situation being owned millions.
Government and Ofcom would likely be heavily involved because PXC service includes critical infrastructure and public-sector organisations. Someone would have to take over and be rewarded with funding or promise of future revenue which could include BT.
What surprises me, with the apparent importance of PXE, is that their customers have not sought contingency arrangements. It all appears to be late in the day.
@ Tim:
IIRC, the terms of the Operator of Last Resort process require the OLR to honour existing contracts for up to two years.
I don’t see how this is good for OR. If TT doesn’t find a buyer, then it won’t be able to pay either. But if they do, they are liable for the fees. So it sounds like they are already asking OR to accept the worst outcome, but in advance.
I don’t think TT going bust is a big risk for OR, I’d assume most of the TT customers would stay on-net, just with a different ISP.
The bidders for the businesses exist; they are likely just playing hardball now by taking advantage of the circumstances to minimise the acquisition costs, which is fair enough. However, that does not mean that BT and other providers on the hook have to just accept what is being proposed.
EoI will likely make this impossible.
https://www.bt.com/bt-plc/assets/documents/about-bt/policy-and-regulation/download-centre/guidance-notes/guidance-notes-equivalence-of-inputs-and-equal-treatment.pdf
£100m write-off, absolutely not. Other Openreach customers would be rightly asking where their nine-figure freebie is.
Openreach caught between the devil and the deep blue sea, here. Either give in to Epiris and write off the debt (which will open the door to everyone else taking the mick in the future), or stick to their guns and potentially see the wider BT Group get accused of anticompetitive behaviour if it’s the straw that breaks the TalkTalk camel’s back.
Ultimately Openreach provided the service, and they deserve to be paid. Let TT sort themselves out afterwards.
It’s a balancing act. Openreach want as much money owed as possible, but if you ask for all of it and TalkTalk get appointed administrators, Openreach could get a lot less!
But it sets a precedent, you might lose more now but it would probably cost even more down the road. And if I were say Sky I would feel fully justified in asking for 3 months free as well!
If what is left of TalkTalk fell into administration, the creditors, such as BT, would likely recover less than a couple of pence in the Pound, if that. Any such administration process is going to have a wide impact on the sector.
I would just let the group go bust. The customers will be saved and then PXC can be broken up into the useful bits. The lights won’t go off immediately.
It is time for BT to play hardball with both the bidders and Ofcom. If it does not take a stand now, who knows what costs will be imposed on it by the next set of failures.
Sets too much of a precedent & quite frankly if I was any other ISP on Openreach’s network I would feel perfectly justified in asking for 3 months for free.
Legally the cleanest option for Openreach would be to let/force an administration (prepack or normal) with no prior agreement for the debt in place, and take what they can get in the administration process.
That way no-one else can claim that any special favours have occurred that would distort competition.
Financially may not be much difference for any of the options offered.
Operationally an administration would be a headache to organise a transfer of control. OfCom should to appoint an “operator of last resort” to operate TT/PXC and create an orderly transition of customers in tranches on the open market (phased tranches notices of termination to customers) or in bulk (whole or tranches) to a new supplier with some contract terms protected (c.f. what has needed to happen with failed energy suppliers).
The creditors are likely to be wiped out if the businesses fall into administration, while the lenders would likely take a sizable hit.
Any Operator of Last resort arrangement would be rather complicated given the distribution of EE’s customers across a number of network providers.
Rather than a straight acquisition of retail customers by the OLR supplier, the business might have to be run as an independent entity. That would be costly, with either Ofcom, the Government or the broadband sector as a whole might have to step in to fund such an operation.
Correction: TalkTalk customers, not EE.