Broadband ISP TalkTalk UK Hits 4.29m Customers – Set FTTH Rollout

Budget UK ISP TalkTalk has today revealed that they added a further +2,000 on-net broadband customers to total 4,289,000 during the first three months of 2019 (down sharply from +44k added in the previous quarter). Work on their FibreNation roll-out of “full fibre” (FTTH) broadband is also set to begin this Summer.

Several developments have taken place since the last update. Firstly, TalkTalk has teamed up with Plume to offer a new “cloud-coordinated” WiFi system that uses AI to optimise your home wireless network (here). Secondly, one of their TV adverts was banned after they misleadingly claimed to be the “only major provider to guarantee no mid-contract broadband price rises on all our plans” (here).

The ISP also confirmed in March that their on-going “Ultra Fibre Optic” deployment of a 1Gbps capable Fibre-to-the-Home (FTTH) based broadband network in the city of York had covered 33,000 premises. TalkTalk is now on-course to complete that work – aiming for 55,000 premises passed – by 2020 (here and here).

The above work also feeds into their FibreNation programme, which had originally planned to work with Infracapital on a £1.5bn investment to cover 3 million UK premises with a new wholly owned full fibre wholesale network. Unfortunately the Infracapital deal was put on ice after a disagreement (here), while TalkTalk’s founder is allegedly now hoping to raise £400m in equity and £600m in debt to support their plan (here).

In the meantime they proposed to start work on a downgraded deployment, which would initially aim to roll-out FTTH to cover 50K to 60K homes in three towns and cities: Harrogate, Knaresborough and Ripon (taking place within the “next 12-18 months,” is what they said 6 months ago). This rises to c.100,000 premises when York is included.

Sadly the previous Q3 FY19 results update didn’t include any solid mention of progress on their FibreNation plan (they’re supposed to be aiming for Harrogate first) and today’s Q4 FY19 update is similarly vague, although crucially they have finally set a Summer 2019 window for their rollout to begin.

Fibre for Everyone

As Consumer and B2B customers increasingly demand faster, more reliable services, it is crucial TalkTalk has a clear strategy to offer a more diverse range of Fibre products that can accommodate different needs.

In FY19 we launched Fibre for Everyone, a cross-group initiative to ensure we are well positioned to benefit from existing and future Fibre demand. In the short term, that means migrating a greater proportion of our base onto Fibre to the Cabinet (FTTC) services and ensuring TalkTalk is a fast adopter of products such as Single Order Generic Ethernet Access (SOGEA) and G.Fast.

The only long term solution to rising demand, however, remains Full Fibre. FY19 saw us make significant progress on our plan to use our scale to unlock greater Full Fibre investment and ensure the maximum number of customers benefit from gigabit services. We launched FibreNation as a wholly owned subsidiary of TalkTalk and initiated a formal process to identify the right long term funding partner as it rolls out gigabit services to three million premises as an independent company.

In the meantime, we accelerated the rollout to three additional towns and cities, Harrogate, Knaresborough and Ripon, with building due to start in summer 2019. That means the value of our asset increases as we finalise the long term funding arrangement.

In the areas not served by FibreNation, we intend to wholesale Full Fibre [FTTP] services from Openreach and potentially others. The Fibre for Everyone programme will ensure the business is well positioned to negotiate access to the services our customers need at a price they can afford.

Now they just need to sort out the investment side and confirm how their own FTTH roll-out is to be funded (the investment partner process is merely said to be “well underway“). So far only £13m (capex) has been set aside to cope with their initial FibreNation costs and the FY20 Headline EBITDA consensus is £266m (excluding FibreNation costs) and £263m (including FibreNation costs), based on a range of estimates.

Tristia Harrison, CEO of TalkTalk, said:

“Today’s results show that two years after re-setting TalkTalk, the fundamentals of the business are much stronger. We have grown our customer base in a disciplined way, accelerated Fibre take-up, and reduced costs. This is translating to revenue growth and a c.17% increase in Headline EBITDA.

Looking forward the business will continue with the same plan, focused on accelerating Fibre, reducing costs and simplifying the business.

Having re-structured the customer base to reduce the difference between our front and back book pricing, the business is also well placed to benefit from imminent regulatory changes related to fairer pricing. These trends, coupled with ongoing cost reductions including our move to one Salford campus, mean we are confident in delivering strong Headline EBITDA growth both next year and over the medium term.”

Overall TalkTalk reported that they added +152,000 new “fibre” (FTTC/P) customers during the past quarter (compared with +146K in the same quarter last year), which will be dominated by their Openreach based FTTC (VDSL2) network. Sadly there are no stats for their new G.fast products or their FTTP/H roll-out.

We note that overall the ISP had +150k broadband net adds in FY19, which is down from +192K in FY18, although the fibre side of this is clearly doing much better. “We had our strongest ever year of Fibre net adds, at 490k (FY18: 348k), including a record 152k in Q4 (Q4 FY18: 98k), where 71% of new customers took a Fibre product (Q4 FY18: 45%),” said the update.

On the financial front they reported total headline revenue for FY19 (excluding carrier & off-net) of £1,609m (vs £1,605m last year) and churn of 1.2% (vs 1.22% last year), while net debt stood at £781m (including finance leases of £39m) and that’s compared with £776m last year.