ISP TalkTalk See Broadband Base Shrink to 4.22m as Fibre Grows

UK ISP TalkTalk has today reported their latest trading update to 31st March 2020 (FY20 financial), which saw their on-net fixed broadband base decline from 4.289 million last year to 4.22m now. On the bright side their fibre (FTTC/P) base increased by 605,000 (net adds) in the year to account for 2.37m of the total.

At this point it goes without saying that the Coronavirus (COVID-19) crisis has had a huge impact across almost the entire industry (e.g. closing call centres, disrupting new line installs, higher data usage etc.), although most of this was felt from late March onwards and as such shouldn’t yet have had a huge influence over TalkTalk’s latest results.

Equally the fact that most of their “fibre” base is still dominated by Openreach’s slower hybrid fibre (FTTC) network, which can be self-installed (no engineer required inside your home), may have provided some protection. Nevertheless TalkTalk states that “engineers have been unable to visit customer premises and this, combined with consumers being reticent to switch for fear of losing connectivity, has led to lower gross additions.”

In fairness we should point out that Vodafone’s recent results for the same period showed a significant surge in take-up (here), which suggests that fear of switching may be overrated as an excuse. TalkTalk’s growth in fibre also remains positive, which confirms that the overall decline in their fixed broadband base has almost certainly come from older ADSL lines.

Otherwise the main development for TalkTalk during the first quarter of 2020 was the £206m sale of their FibreNation network to Cityfibre (here), which reflected their own roll-out of gigabit-capable Fibre-to-the-Premises (FTTP) broadband technology in York and several other towns. Under this deal TalkTalk retains access to the network, albeit under Cityfibre’s ownership.

The bad news is that TalkTalk still aren’t able to give a launch date for their Openreach based range of FTTP broadband packages, which has been in trial since late 2019.

Update on TalkTalk’s Openreach FTTP Plans

Separately, we remain in talks with Openreach to gain access to competitive pricing to encourage faster adoption of FTTP throughout the UK. We will also seek to enter into wholesale agreements for FTTP with other altnets where we are able to do so.

We spent much of the first half of the year building the systems and capability to provide FTTP services and throughout the second half of the year have launched Openreach FTTP to customers on trial pricing. We continue to be well placed to succeed in this space. With multiple routes to market through TalkTalk Consumer, Business and Wholesale, as well as a significant existing customer base, we are one of the few scale operators able to offer significant volume commitments to network builders and drive commercial advantage.

Despite this the ISP said that their “long-term ambition is to transition all customers to new FTTP networks as quickly as possible” (i.e. via Cityfibre, Openreach and possibly other suppliers). Speaking of which, 85% of TalkTalk’s new consumer customers in March signed up to one of their “higher speed” products (compared to 72% at the same time last year) and, of these new fibre customers, some 49% took their 80Mbps FTTC product throughout FY20 (FY19: 30%).

General Changes

The ISP has also given an update on their progress in other areas too, such as Ethernet (leased lines etc.). TalkTalk grew their overall Ethernet base to 42,600 (FY19: 37.3k), with 5.3k net adds (FY19: 5.3k), representing a c.17% share of all new Openreach Ethernet lines (some 36% of orders were for their 1Gb service [FY19: 23%], which comes with significantly higher ARPU and lower churn).

At the time of writing TalkTalk also predicts that COVID-19 will have a £15m impact on their business.

Tristia Harrison, CEO of TalkTalk, said:

“Our priority throughout the COVID-19 pandemic has been to keep the nation connected, while keeping employees safe. Access to reliable, affordable connectivity has never been so important – and low prices matter now more than ever before. As the only scale, value provider, TalkTalk continues to be well positioned to meet this demand. Our strong and resilient network has kept families, friends and communities connected nationwide; and provided vital services for the NHS, care homes and supermarket distribution centres.

Our FY20 performance has been robust. We have grown our Fibre Broadband base by 34% and grown our Headline EBITDA by 9.7%. Whilst industry wide Voice usage declines and the continued re-contracting of the legacy copper base has led to some revenue decline, this has been more than made up by ongoing cost reduction and simplification. The completion of our HQ move from London to Salford and the sale of our Fibre Assets Business to CityFibre for £206m has made us a simpler and more resilient business.

Looking ahead to FY21, we remain in a robust operational and financial position, with levers in our control to manage costs further, whilst having not required any furlough or government assistance. While the uncertainties of COVID-19 mean we will not be providing formal guidance, based on current trends we would expect to deliver stable Headline EBITDA year on year, after assuming a c.£15m COVID-19 impact. We also expect strong cash conversion and will therefore be maintaining the dividend at 2.5p.”

On the financial front they reported total headline revenue for the year of £1,518m under the IFRS 16 reporting standard, which is down from £1,544m last year under the pre-IFRS 16 system. Similarly the statutory operating profit came in at £197m, which is up from just £47m last year.

However on-net churn remains at 1.2% and net debt is now £954m, which is up from £781m last year.