TalkTalk Prep Imminent Launch of Openreach FTTP Broadband

The latest results (Q1 FY20) from TalkTalk have revealed that the UK ISP still hasn’t sealed a deal to sell FibreNation and its rollout of a new “full fibre” broadband network, although they did see strong take-up of their FTTC packages and confirmed plans to launch ultrafast FTTP via Openreach “before the end of the calendar year.“

Overall TalkTalk has had an interesting quarter. On the one hand they’ve introduced a “Fairer Pricing Commitment” for customers (here), while on the other they’ve decided to charge former customers up to £5 per month for access to their old email accounts (here).

Meanwhile the ISP has also been continuing their efforts to drum-up investment support for their FibreNation (wholesale company) sibling, which since its creation last year has held a long-term aspiration to cover 3 million UK premises with a 1Gbps Fibre-to-the-Home (FTTH) broadband network. We had an indication this week that an announcement – possibly a sale to Cityfibre – might be close (here) but today’s update says those negotiations are on-going.

Upon closer inspection the provider says this: “Assets and liabilities held for sale – The Group is continuing to progress with its planned sale of FibreNation, which provides wholesale full fibre, as required to achieve the Fibre-to-the-Premise (FTTP) network roll out speed and ultimate scale required. The sales process of Group assets and liabilities associated with FTTP operations is ongoing and the sale is expected to be completed by 31st March 2020.”

On the upside TalkTalk has revealed that they separately expect to start offering ultrafast broadband packages via Openreach’s FTTP network before the end of the “calendar year,” which we assume means 2019 rather than 2020 and will no doubt complement their existing G.fast based packages (focusing upon areas not served by their FibreNation network).

TalkTalk Statement

We created our ‘Fibre for Everyone’ programme. This is a cross-Group initiative where we will consume wholesale FTTP from Openreach, in an extension of our commercial wholesale FTTC agreement, FibreNation and other alternative network operators to provide future-proof connectivity to homes and businesses across the UK.

In the first half of the year, we have been building the systems and capability to provide FTTP services and we are aiming to launch Openreach FTTP before the end of the calendar year. We are also getting ready to consume Single Order Generic Ethernet Access (SOGEA) at scale in the next year.

At this point we’d normally summarise TalkTalk’s broadband base and customer growth, which at the last proper update in May 2019 stood at a total of 4,289,000 (this saw them add just +2,000 on-net customers in the first calendar quarter of 2019). However this time around the ISP, possibly due to a decline in their overall broadband base (mostly from ADSL), has chosen to only focus upon their fibre growth (predominantly FTTC with a little FTTP via FibreNation).

The provider said they added (net) 292,000 “fibre” customers in the first half of 2019 (financial), including a record 174,000 in Q2, which they added accounted for a 33% share of all new Openreach Fibre-to-the-Cabinet (FTTC) broadband lines in Q2 (H1 FY19: 22%). But they also noted that “a number of legacy copper customers” opted to leave TalkTalk, meaning on-net churn has risen year-on-year to 1.26% (Q2 FY19: 1.11%).

We were at least able to confirm that over 50% of their total base (Consumer and B2B) is now on a “fibre” product, with the fibre base now in excess of 2 million. “As we exited the half, 81% of new Consumer customers signed up to one of our higher speed products compared to 54% at the same stage 12 months ago. Of these new Fibre customers, 42% took our faster, higher ARPU 80Mbps [FTTC] product (H1 FY19: 22%) and lower wholesale costs from Openreach means we can continue to migrate more of our base to these faster services more economically,” said the provider.

Despite this progress we still think that the ISP is facing somewhat of an uphill battle as they play catch-up with a growing pool of rivals. As a provider they already have a fair bit of debt and building a new full fibre network inevitably comes attached to a lengthy payback period (c.15 years is not unrealistic), which is why securing a FibreNation deal is essential.

Tristia Harrison, CEO of TalkTalk, said:

“We’re pleased that our clear strategy to accelerate customer growth in Fibre broadband while also reducing costs has led to a significant increase in profitability in the first half, with a 14% year-on-year increase in like-for-like 4 EBITDA. We now have over two million customers taking a Fibre product, adding nearly 300,000 customers in the half.

Fibre broadband is good news for customers and TalkTalk. It offers a faster, more reliable service whilst also reducing churn and comes with a materially lower cost to serve. In addition, our soon to be completed HQ move and shift to a self-service model is underpinning our cost reductions.

Our Headline EBITDA outlook for the year remains unchanged.”

On the financial front they reported total headline revenue for H1 FY20 (excluding carrier & off-net) of £764m, while net debt stood at £1,041m.

UPDATE 9:57am

Reports claim that a proposed sale of FibreNation to Cityfibre has been delayed until after the 2019 General Election, which is allegedly because of the grenade that the Labour Party just threw into the industry’s centre (here). Naturally the party’s pledge to deliver free full fibre to homes will be having an impact on the inflow of private investment, which is precisely what the market doesn’t need right now – more instability.