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TalkTalk See FTTH Progress in York as Broadband Users Fall to 3.99 Million

Thursday, May 12th, 2016 (8:18 am) - Score 1,003

After a rocky start TalkTalk appears to be on the path to recovering from last year’s cyber-attack, but not before reporting that they ended Q1 2016 (calendar) with a total of 3,996,000 on-net broadband subscribers (down from 4.1 million six months ago). Elsewhere mobile customers might be in for a difficult transition.

The full year trading update (FY16) also notes that their total broadband base includes 704,000 taking their “Superfast Fibre Broadband” (FTTC / VDSL) service, which is up strongly by +126,000 in the last six months (up from the +99,000 added in the prior six month period) or +72k in the last quarter alone. The ISP notes that their “fibre customers are amongst our most satisfied customers with strong NPS scores and significantly lower propensity to call, which is driving lower churn.”

However, in terms of TalkTalk’s overall broadband base decline, the ISP explains that this is due to a number of changes and not just last year’s cyber-attack.

TalkTalk’s Latest Broadband Decline

The change in the base reflects two principal effects:

  • An adjustment arising from a change in credit terms from 180 days to the industry standard of 90 days, which resulted in 72k non-paying customers being disconnected during H1.
  • A 95k impact in Q3 resulting from the cyber attack, reflecting churn in the immediate aftermath of the attack and much lower additions activity as it took longer than expected to return the business to normal sales effectiveness.

The balance of the fall of 14k reflects underlying activity of -8k in H1 and -6k in Q3, with Q4 net adds flat. We also completed the migration of Tesco broadband customers, and saw continuing growth in our profitable B2B wholesale broadband base to 830k (FY15: 737k). While average churn across the year was 1.6% (including the cyber related churn), we saw a significant improvement in Q4 to 1.3%.

The ISP has also recently reported some other positive news after they announced the launch of their new blinkbox based Internet TV streaming service (here) and unofficially revealed, via Ofcom, that their plans to introduce a new 4G femtocell supporting home broadband router were still making progress (here).

Furthermore today’s results also give us an important update on the progress of their joint 940Mbps capable fibre optic broadband (FTTH/P) network deployment with Sky Broadband and Cityfibre in the City of York (England), although there’s still no clarity over what will happen after the Phase One goal (20,000 premises passed) has been achieved.

TalkTalk’s Fibre Optic Network Progress in York

We are making significant progress meeting the key operating metrics (cost per home passed, customer experience and penetration) in Ultra Fibre Optic (UFO), our fibre to the premise (FTTP) trial in York. We completed the build of the first 8,000 homes at a cost of under £500 per home and are now testing penetration. Customer trials ended at the end of March, when we launched the proposition commercially.

Over 90% of the trial participants have chosen to retain the service and pay £21.70 per month which is particularly notable, as the vast majority were not existing TalkTalk customers. After two months TalkTalk UFO penetration stands at 7% of homes passed and continues to accelerate. Feedback from the first customers has been extremely positive and we are polling customers in other York neighbourhoods to establish interest for the next phase of building.

Based on these experiences, we remain confident about the potential to roll out FTTP at scale. At a build cost of under £500 per premise passed and 30%-40% take-up, we believe it will be possible to build a c 10million household network across the UK. We see Ultra Fibre Optic as an opportunity to build a mass market, value for money proposition that delivers value for consumers and shareholders through keen pricing and rapid scaling. We expect to review progress and decide on the next phase of development later in the year.

As it stands most of the city has yet to be covered and Sky recently indicated that they don’t plan to build more FTTP/H networks of their own (here), which could hamper future expansion plans; TalkTalk’s aspiration to reach 10 million UK premises would still require significant investment and that’s not easy for them to do alone.

Dido Harding, CEO of TalkTalk, said:

“The business bounced back strongly in the final quarter following the cyber attack in October. We recorded our lowest ever churn and stabilised the broadband base, testimony to the speed with which customer sentiment towards TalkTalk has recovered, the success of our greater focus on existing customers, and the growing benefits of our simplification programme. We reported full year results in line with our guidance and have declared a 15% higher dividend for the year.

TalkTalk is well positioned to build upon our already strong credentials as the UK’s leading value for money quad-play and B2B operator. There has never been a clearer space for a trusted value champion and our learnings from and experience since the cyber attack have helped to focus our plans for the year ahead. We see strong opportunities for growth across all our products, both for consumers and for businesses, against the backdrop of an increasingly supportive regulatory environment. As a result we are reiterating our financial guidance for FY17 of £320m-£360m EBITDA.”

Elsewhere TalkTalk reported that they had added +90,000 new Mobile customers in the last quarter to make for a total of 699,000. However they also lost -14,000 TV customers during the quarter, taking the total base to 1.389 million.

Meanwhile the ISP is working to complete their new billing system and other associated functionalities, which should allow them to finally launch 4G mobile and national roaming services on their new MVNO agreement with O2 (the former agreement was with Vodafone) and extend the full mobile proposition to business customers.

However the customer migration from Vodafone’s platform to O2 isn’t expected to begin until H2 FY17 (today’s results are FY16) and it’s stated that “this process will involve a SIM swap and we will take a careful approach to the planning of this transfer in order to minimise customer disruption,” which sounds like a potential nightmare for subscribers.

The good news is that TalkTalk’s agreement includes deeper integration with O2’s radio access network through the building of a “thick core system”, which should give them more control including real-time management of traffic etc.

We also get an update on the ISP’s plan to add 4G Femtocell technology into their future broadband routers (check our recent story for background), which will allow them to improve indoor mobile coverage and offload mobile traffic via their fixed line network (cost savings). But the official roll-out of this isn’t expected until FY18+, which suggests that it could still be a year or more away.

Finally, on the financial front, the ISP reported total revenue for the year of £1,838m (up from £1,795m last year), while annual profit after tax increased to £79m (up from £76m last year, but this excludes net exceptional items and amortisation of acquisition intangibles) and actual operating profit hit £38m (down from £54m last year). It’s been a difficult year, but TalkTalk should be looking towards better times ahead.

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By Mark Jackson
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 Twitter, , Facebook and Linkedin.
Leave a Comment
6 Responses
  1. FibreFred says:

    Profits halved and still trying to put a positive spin it on, good on you Dido 😉

    1. asylum_seeker says:

      Since when is 38 half of 54?

    2. FibreFred says:

      “Telephone and broadband provider Talktalk saw profits more than halve following a hack attack on its systems last October.

      Profits fell to £14m compared with £32m a year earlier.”

      http://www.bbc.co.uk/news/business-36273449

    3. Mark Jackson says:

      Worth reading the full document as it contains several ways of expressing profit, the one FibreFred mentions is “before tax”. Profit after tax and everything else was just £2m, down from £72m in 2015.

    4. wirelesspacman says:

      Profit is a relative concept!

      Some companies would even argue that profit is a voluntary concept!! 🙂

  2. FibreFred says:

    So they are still confident about a mass rollout of FTTP, hopefully they can afford it, maybe Sky might become a customer?

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