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UK ISP TalkTalk Loses Fewer Broadband Users and Details York FTTP Plan

Tuesday, November 15th, 2016 (9:23 am) - Score 1,052

TalkTalk has published their latest interim results for the 6 months to 30th September 2016 (H1 2017), which saw them lose fewer on-net broadband customers (-29,000) in the period to total 3,967,000 and 21% of those (779K) take their FTTCfibre broadband” products (with 2,500 on FTTP in York).

Last year’s cyber-attack (hack) and massive personal data breach has weighed heavily upon TalkTalk all year and the ICO recently fined the ISP £400,000 as a result of the incident (here), but churn has now fallen back to 1.4% (down from 1.7% in H2 2016) and the provider seems to finally be turning a corner for the better.

On top of that the ISP has also increased both their Mobile customers to total 793,000 (up from 699,000 in H2 2016) and their “Fibre Broadband” (FTTC/P) base to 779,000 (up from 704,000 in H2 2016). As such the only major fall was in their standard broadband and TV base (TV fell from 1,389,000 in H2 2016 to 1,333,000 now).

Meanwhile both TalkTalk and Cityfibre recently announced a joint plan to extend their 940Mbps Fibre-to-the-Home (FTTH) based “Ultra Fibre Optic” trial broadband network in the City of York from 14,000 premises today to 40,000 over the next 2 years for an extra £20m (here).

Today’s report gives us a few tiny bits of new information to add to the October 2016 announcement, which we’ll summarise below.

Extra York Ultra Fibre Optic Trial Details

• Customer satisfaction scores for the UFO product are strongly outperforming FTTC, with scores consistently averaging over 80% with almost no customer churn.
• 14,000 homes passed were achieved at a per premise build cost of £417 (excludes the home installation).
• 2,500 TalkTalk and Sky customers taking service (18% of homes passed within just 6 months).
• Churn to date on the trial network reflects just 1 customer loss.
• 100% uptime since launch (TalkTalk says their unbundled MPF lines would expect 50+ faults over the same period).
• TalkTalk predicts “significant operational improvements to further reduce costs and improve marketing efficiency, which we will trial in phase 2 in York“.

Elsewhere TalkTalk also touches on the difficult subject of their on-going efforts to migrate Mobile customers away from their Mobile Virtual Network Operator (MVNO) agreement with Vodafone and on to the new O2 based platform, which has been a source of much frustration for the provider (example).

The ISP claims to have “made progress in the first phase of migrating from Vodafone to Telefonica MVNO, which involves moving existing mobile customers onto our new CRM and billing platform, and launching a 4G service on the Telefonica UK network for new customers.”

A number of milestone events are said to have been achieved over the past six months, including deploying their new platforms to live environments, provisioning their own TalkTalk 4G SIMs on the O2 network and successfully making live calls, sending SMSs, conducting data sessions and number porting with other MNOs. Bulk billing migrations and service launch on O2 will begin during Spring 2017, followed by network migrations.

Dido Harding, CEO of TalkTalk, said:

“We have delivered an excellent uplift in first half profits and expect to deliver materially higher full year profits than last year. One year on from the cyber attack, we have maintained a relentless focus on looking after our existing customers and keeping up the pace across a wide range of operational improvements to make TalkTalk simpler and better for customers. As a result we have seen significant year-on-year improvements in churn and customer satisfaction.

We are delighted with the initial response to our Fixed Low Price Plans, which offer customers simple, affordable and fair prices in an increasingly confusing market place. By allowing our existing customers to switch to these new plans, we are delivering a value for money proposition to our customer base that is genuinely unique in the market, and are laying the foundations for a fundamental transformation of the TalkTalk brand.

This combined with our ongoing focus on Making TalkTalk Simpler will drive a return to retail subscriber and revenue growth in FY18, supporting our confidence in the longer term prospects for the business.”

On the financial front TalkTalk reported total revenue of £902m for H1 2017 (down from £926m six months ago) and their Average Revenue Per User (ARPU) has similarly dropped from £28.91 to £28.05 over the same period. The only aspect of revenue that improved was for their corporate services, which jumped from £196m to £208m over the same period.

TalkTalk also reported an unaudited headline operating profit of £60m (£35m after tax) for the six month period, which is well up from £25m (£11m after tax) on the same period last year. However over the same period the ISPs Net Debt has gone from £631m to £847m and their operating free cash flow is now sitting at -£28m (last year they had £31m to use).

Finally, it’s worth checking out the ISPs latest investor results presentation as this sheds some light on customer feedback and future plans. According to that, TalkTalk plans to invest £40m over 3 years to expand their capacity and “drive down our long term backhaul costs by £20m p.a.“.

The same presentation notes how they plan an “extension of dark fibre capacity from core network to collector (edge) will drive costs down as bandwidth expands exponentially” and they also claim that “more customers get the speeds they pay for on our network than any other“, although no proof of having tested every other UK network is provided to help confirm that statement.

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Mark Jackson
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.
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29 Responses
  1. Avatar 125uS says:

    £20M to pass 26,000 homes with a 20%-ish takeup looks expensive – close to £4000 a property. If the line rental part of the service is £15 a month, and if you ignore interest repayments and plant maintenance the investment has a payback of over 20 years.

    In the detail box above – it talks about £417 per premises build for 14k homes, but I think that means premises passed as the next bullet point talks about only 2,500 actual customers. That tallies with the close to 20% take up figure.

    Bearing in mind that York was presumably chosen as a good location for this trial – density and relative wealth of dwellings and all that – it’s clear to see why there’s no giant rush to FTTP.

    1. Mark Jackson Mark Jackson says:

      £20m works out at around £769 per premise, which sounds about right if we consider some of the more expensive areas to serve during the latter stages.

    2. Avatar 125uS says:

      £769 per premises passed though – not for each premises served. If the take-up doesn’t improve it’s cost them close on £4000 a customer.

  2. Avatar ajays says:

    £769 per premise passed sounds high especially with only 20% takeup. That means it would cost TalkTalk getting on for £4,000 for each customer. That’s before interest repayments, maintenance and other operating costs. Certainly a long term investment.

    1. Avatar 125uS says:

      The problem is that if interest rates rise or the market price of broadband falls or any of a number of other things occur – at any point in that 20 year payback period – you make no money at all.

      Investors know that and are wary to put their cash on the table. There’s no upside risk – people aren’t going to suddenly start paying £1000 a month for broadband or demanding ten circuits into their home, so the risk is all against the investor.

    2. Avatar MikeW says:

      The strange thing is the choice of location.

      If you go by TBB’s map of coverage, then TT’s fibre offering overlaps almost entirely with BT’s NGA offering, of which around 50% is BT’s FTTP. It also roughly overlaps 50% with VM’s network.

      Could they have chosen anywhere more competitive?

    3. Avatar FibreFred says:

      Yep I said that before they started digging

      I think the only reason was because cityfibre were already in town and out of the small amount of areas they have a presence this looked best.

    4. Avatar brianv says:

      Actually, pay-back period is similar to BT and its half-baked FTTC rollout.

      From the blog that BT and its astroturfers would sooner you never read –

      ( https://br0kent3l3ph0n3.wordpress.com/2011/06/24/why-hunt-needs-to-break-the-broadband-logjam/ ) :-

      Kevin McNulty, Openreach’s general manager for next generation access commercial partners, said:

      “BT breaks even on its Infinity investment in 12-14 years with a 20% take-up.”

      Though there’s an obvious distinction in take-up rates between TalkTalk’s FTTH and BT’s FTTC.

      The offering from TalkTalk is a quality bleeding-edge product with a price that reflects its premium.

      Whereas punters migrate to BT’s mundane FTTC product more out of desperation. Hoping to limit their exposure to BT’s crumbling copper plant. More out of necessity than a move based on choice. That’s what makes this true fibre offering from TalkTalk so exciting.

      Forget BT’s drivel about its yesteryear products. What TalkTalk is showcasing here is truly “next generation”.

    5. Avatar New_Londoner says:

      @BrianV

      It is neither bleeding edge nor from TalkTalk – remember the network provider is City Fibre Holdings. And of course you’d expect payback to be better here (it was handpicked after all) than when averaging it across more diverse environments.

      If your thing is bleeding edge (no idea why) then G.Fast and later XG.Fast are much more cutting edge than either VDSL FTTC or FTTP.

    6. Avatar brianv says:

      @New_Londoner:

      G.Fast / X.G.Fast / XX.G.Fast — is not “bleeding edge”. It’s Copper Kludging.

      Another BT bodge. No substitute for fibre to the premises.

      BT MOTTO: Bodge the current plant and screw the last shekel out of it. Ever mindful of its City stakeholders, the slimemould in the square mile.

      The punters expect better. Much better.

    7. Avatar New_Londoner says:

      @BrianV
      The use of alliteration doesn’t make you right! You’d need a very strange definition of bleeding edge to categorise FTTP that way, whereas G.Fast is still in development in terms of chipsets, kit etc, and XG.Fast is still in the labs.

  3. Avatar New_Londoner says:

    To highlight some of the key points:

    1. Total revenue is down in a growing market
    2. ARPU is down in a growing market
    3. The broadband customer base is down in a growing market
    4. The brand damage from the lax / non-existent cyber security continues
    5. The “York” trial is way behind the original objectives (eg deployment in York is late, the plan for two more trial cities seems to have been shelved, Sky has backed off)

    Not exactly a stellar performance!

    Long-term the company is under capitalised, is still reliant on an aging LLU infrastructure and has a largely undifferentiated produce so will have to compete on price, hence the declining ARPU. I’m not a shareholder, if I was I’d been hoping for a buyout as the market continues to consolidate.

    Clearly Dido sees it slightly differently! Although even she is suggesting that growth is 18 months away, so the company will continue to be outpaced by its rivals for some time.

    1. Avatar FibreFred says:

      She’s the queen of spin trying to hold onto her job, of course she paints a different picture.

    2. Avatar Evan Crissall says:

      “I’d been hoping for a buyout as the market continues to consolidate. ” —

      That’s the official line from the City of London. Consolidate the telco sector. Leaving just two, possibly three, fixed-line players. Destroy the competition, especially cut-price competitor, TalkTalk plc. Then really go in for the kill and gouge the consumer! That’s what he’s there for! To gouge, to rob, to swindle!

      Eliminating the competition through any means necessary. Lawful or otherwise. Cyber-warfare attacks? No problemo. Cue the finest spotty-faced nerds at Cheltenham.

      It matters not whether the cyber attacks on TalkTalk were even real or not, whether minuscule in scale. Or just staged or outright hoaxes. The state- and corporate-medias sexed up the malicious storylines just the same. Inflicting widescale reputational damage on an important competitor in the sector. And cui bono? Stakeholders in BT, Virgin and Sky.

      That policy of sector consolidation – and the elimination of TalkTalk – decided on by a shady cabal of High Financiers. Organised crime syndicates of faceless gangster-banksters who run the City in secret. While domiciling themselves and their dirty-money, for obvious reasons, from exotic far-off lands. That’s the real City, so it is.

      What he have here is a policy of consolidation, articulated predictably by City of London stalwart, New_Londoner. And we don’t like it.

    3. Avatar Evan Crissall says:

      To highlight the most important financial:

      “TalkTalk on Tuesday reported a 44 per cent rise in profits in the six months to the end of September. First-half earnings before interest, taxation, depreciation and amortisation rose to £130m, driven by cost savings and lower subscriber acquisition costs.”

      That’s a huge rise in profits, which shows that TalkTalk is back on track.

      And it puts New_Londoner’s pointless, bullet-pointed smear into perspective.

      With profits up 44%, what relevance an 86 pence fall in Average Revenue Per User, and churn of a few thousand out of 4 million more?

    4. Avatar AndyH says:

      @ Evan Crissall

      That is certainly not the most important financial. Perhaps you missed that the shares dropped some 6.5% after their results?

      I would suggest looking at the EBITDA, the reduced guidance and the loss of customers being worse than analyst expectations.

    5. Avatar Evan Crissall says:

      @AndyH Perhaps you were never taught that the share price is a reflection of investor sentiment; not the underlying performance of a company.

      And it’s commonplace for the wretchedly corrupt media to ‘talk down’ a stock. So as to profit from ‘short-selling’. Shorting is when you speculate that a share price will fall. Which of course it always will, if you smear a company enough.

      That’s exactly what we had (or have) with TalkTalk. A coordinated smear campaign against TalkTalk. Waged by those set to profit from its plunging share price. Behaviour that is technically illegal. But common enough in the organised crime-infested City of London. In collusion with the intelligence-run media.

    6. Avatar AndyH says:

      It has a little more to do than sentiment…

      The valuation of any stock price for a company is primarily on the future discounted cash flows within a reasonable time period (or put another way, the law of one price where the stock valuation is equal to the net present value of future dividends received plus an end sale price receivable by the investor). The market price of a stock is nothing more than a Keynesian beauty contest.

      If the future outlook for a company after its results resulted in lowered future guidance, then the stock price will fall – as did happen with TalkTalk.

      As for the short interest in TalkTalk, you were obviously aware the SI actually fell in the days after the results came out?

    7. Avatar Evan Crissall says:

      @AndyH.

      Nope, the share price reflects what buyers are willing to pay. Not what the company is ‘worth’. Share price has no relation to ‘net asset value’.

      That’s how we end up with vapourware tech stock ‘worth’ billions on paper, but nothing in practice. Like lastminute.com and boo.com with market caps of £2bn. But turnovers of next to nil.

      In BT’s case, its pension liabilities now dwarf its the value of its asset.

      But then, as a time-served BT Troll, you knew that full well.

      Basic tactic of every disinformationalist: when faced with challenging discussion – in this case the blackhole in BT’s Pension Fund – dissemble, divert, distract and deflect.

    8. Avatar AndyH says:

      I guess it’s hard for you to comprehend the word ‘valuation’.

      The value of any stock is the NPV of all future dividends – pick up any financial markets book and it will tell you this. The price of any stock is a Keynesian beauty contest (I suggest buying a copy of The General Theory of Employment, Interest and Money). Keywords here being valuation and price.

      I am not sure where NAV came from, I never mentioned it.

      “In BT’s case, its pension liabilities now dwarf its the value of its asset.” – No idea how you’ve come up with this. Net pension liability is £9.5bn and total group assets are £44.4bn.

  4. Avatar New_Londoner says:

    @Evan
    Firstly, and most importantly, take a deep breath and calm down! 🙂

    Now let’s look at the facts. Firstly, you’re right that profit is up, but £35m after tax profit on £900m turnover is nothing to shout about. Also, remember that profit is a pretty subjective value in the accounts, can be (legally!) adjusted up or down by including or excluding various discretionary items – just ask an accountant.

    The more useful areas to examine as they are not subject to such judgments, are items such as revenue (down), customer numbers (down), ARPU (down), cash flow (down), debt (big increase). Yes the ARPU and customer number declines are relatively small, but the main competitors’ numbers are heading in the opposite direction so the company continues to fall behind.

    More significantly are the cash flow and debt positions, both of these would concern me if I were an investor.

    Whether pointing out the facts amounts to a capitalist conspiracy is a matter for others to judge, I thought we’d all moved on from that caricature world view. Of course you could always take the standard TalkTalk approach – if the facts don’t fit, just make up some new ones! 😉

    1. Avatar Evan Crissall says:

      We can spin the financial figures until we’re blue in the face. With no context they’re meaningless.

      For example, on paper, your belle-of-the-ball, BT plc, ain’t looking too rosy, is it.

      Today, the FT again reports on the massive hole in BT’s pension fund :-

      https://www.ft.com/content/a0cf5e4a-7980-11e6-a0c6-39e2633162d5

      BT’s pension fund has a shortfall amounting to 21 per cent of market cap. BT now has the third largest pension deficit of all FTSE100 companies. Its pension liabilities far outstrip its assets. Completely dwarfing, by comparison, the debt burden at TalkTalk of a trifling £847m.

      BT’s overall net debt has increased from £5.9bn a year ago to an eyewatering £9.57bn today. That’s not sustainable. Something has gotta give says the FT. Slashing of dividends? Or more likely, even less money spent on maintaining that creaking copper network?

      BT with staggering liabilities like that, I’m sticking with TalkTalk, thanks.

      http://www.telegraph.co.uk/business/2016/10/27/bt-sales-soar-on-ee-takeover-but-pension-gulf-widens-by-33bn-in/

    2. Avatar AndyH says:

      “Today, the FT again reports on the massive hole in BT’s pension fund”

      Hmm. Unless we live in a time machine, that article came out over 2 months ago.

      But hey, let’s not get in the way of some BT trolling on here.

    3. Avatar Data Analysis says:

      “Hmm. Unless we live in a time machine, that article came out over 2 months ago. ”

      I see http://www.telegraph.co.uk/business/2016/10/27/bt-sales-soar-on-ee-takeover-but-pension-gulf-widens-by-33bn-in/
      As…
      27 October 2016 • 8:15am
      Not even 1 month as i type, so yep someone has been time travelling but not who you levelled it at.

    4. Avatar AndyH says:

      Today, the FT again reports on the massive hole in BT’s pension fund :- https://www.ft.com/content/a0cf5e4a-7980-11e6-a0c6-39e2633162d5

      SEPTEMBER 13, 2016 by: David Oakley, Corporate Affairs Correspondent

      So no, you are incorrect – it’s over two months ago.

    5. Avatar Evan Crissall says:

      The FT’s article is just one in a long series on BT’s ballooning Pension Fund deficit. Are you going to grace us with your thoughts in that, @AndyH, or just more distraction with your BT Trolling?

      There’s another piece today – in the Daily Telegraph – interviewing Gavin Patterson, BT CEO. Patterson (“call me Gav”) is keen to play it cool. Tieless. Shirt buttons undone. But brow still sweating. But that Deficit won’t stop growing. Now £9.9bn. Up another £500m in last few weeks alone.

      http://www.telegraph.co.uk/business/2016/11/19/gavin-patterson-the-uncertainty-is-not-good-for-bt-its-not-reall/

    6. Avatar AndyH says:

      “But that Deficit won’t stop growing.”

      Even from the article you posted, “At current levels, every 10 basis point increase on gilt yields is a £800-900m reduction on the liability”.

      And what has happened to the 10y gilt yield in the last two weeks? Shock horror – a jump from 1.13 to 1.45.

      Still happy to claim that deficit won’t stop growing?

    7. Avatar Dumb argument says:

      “Today, the FT again reports on the massive hole in BT’s pension fund :- https://www.ft.com/content/a0cf5e4a-7980-11e6-a0c6-39e2633162d5

      SEPTEMBER 13, 2016 by: David Oakley, Corporate Affairs Correspondent

      So no, you are incorrect – it’s over two months ago.”

      That link goes to a page asking me to sign up, same for everyone i assume?

  5. Avatar Evan Crissall says:

    Another FT article on the BT Pension Fund black hole. From Oct 19. But just as relevant. In fact, the vast deficit can only have gotten bigger in the past month.

    https://www.ft.com/content/410b76f2-0705-3bd9-b27c-5c8e9d23444f (paywalled) :-

    UBS claims that BT is significantly understating its Pension Fund Deficit, even at £9.9bn.

    Ouch!

    “The Swiss bank reckons that for BT, the deficit has widened by some 40 per cent since last June, reaching £14.2bn.”

    http://www.digitallook.com/news/broker-recommendations/bts-pension-deficit-swells-to-142bn-ubs-says–1767698.html (free-to-read)

    Considering BT has a market cap of ‘only’ £37bn, we see the enormity of the problem. Its pension scheme deficit, alone, approaches half the company’s value.

    Could BT be hatching another cunning plan? At some point, will it “regrettably” relent to an Openreach spin-off? Ostensibly with reluctance. But by then, more out of necessity? Allowing it to dump the bulk of those pension liabilities onto a newly-independent network infrastructure company, “Openreach PLC” ?

    But first, lobbying HMG to re-apply the Crown Guarantee to the newly-formed company, expunging BT Group of further liabilities. Though at that point, the pension fund burden may have gotten just too great to manage. Tipping the fledgling Openreach PLC into insolvency as it attempts to plug the hole. With HMG forced to step-in to safeguard the interests of 500,000 BT pensioners. Bankrolling the bankrupt defined benefit scheme with the state-backed Pension Protection Fund. A possible exit strategy at BT to escape its pensions crisis?

    Again from the FT, from September last:

    https://www.ft.com/content/9c50f8f8-5323-11e5-b029-b9d50a74fd14

    “The size of BT’s deficit has increased from £5.8bn to £7bn in the 12 months to the end of 2014, according to research by LCP, the pensions consultancy. [Deficit now stands at £14.2bn according to UBS]
    ..
    Bob Scott, partner at LCP, said the size [of the deficit] highlighted “the difficulty of managing such large liabilities relative to the size of a company”.

    He added: “[If these companies] could not service their liabilities, at worst they would have to come to an arrangement with the Pension Protection Fund. The sheer size of the liabilities means that a number of companies are facing big risks.”

    Mr Scott highlighted BT as particularly vulnerable to problems arising from its £47bn of pension liabilities. This figure far outstrips the company’s market capitalisation of £35.5bn.

    He said: “You have a pension fund that is 1.5 times the size of the company.

    “If something happens to the pension fund, it would have a disproportionate impact on the company.”

    BT declined to comment.
    ——–

    One thing we know for sure is that BT Group plc is an artful operator. Devoid of moral compass. Adroit at stitching-up the consumer, taxpayer and regulator, since the day it was privatised.

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