Octopus goes cold on bid for TalkTalk’s UK wholesale business PXC
The debt-strained TalkTalk Group just can’t catch a break. A new report emerged last night that claimed Octopus Investments were no longer in exclusive talks over the acquisition of TalkTalk’s wholesale broadband business – PlatformX Communications. The move came only days after both issued a joint statement to say they were “optimistic of delivering” a deal.
The development also followed shortly after TalkTalk’s separate attempt to sell their consumer broadband business to Opus Broadband, which was previously reported to have been working alongside investment firm Alchemy Partners on a potential c.£250m bid, appeared to fail. Instead existing investor Ares Management and TalkTalk founder, Sir Charles Dunstone, now seem likely to take long-term ownership of the consumer business.
One key difficulty here is that TalkTalk’s consumer business is strongly linked to PXC’s wholesale products, thus any deal for one side of the business or the other would require some agreement on how that relationship continues into the future.
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According to Sky News, TalkTalk’s advisers from PJT Partners, the investment bank, are now said to have spent the weekend trying to elicit fresh interest for PXC from another formerly interested party, Epiris, the private equity firm that was initially in the running to buy the wholesale business earlier in the summer (this was before Octopus Investments took preference).
Epiris is currently in the middle of a separate £1bn+ takeover bid for London-listed business ISP Gamma Communications (here), which recently appeared to descend into a bidding war against Waterland, the private equity firm. The PXC business could potentially share substantial financial synergies with Gamma on this front for Epiris, assuming they still have an interest.
However, Sky’s report highlights inside sources as suggesting that TalkTalk and Octopus have not yet completely abandoned their discussions over PXC, although it’s understood that there is “now only a remote chance of a deal” being done. The report further claims that TalkTalk has until the end of September 2026 to resolve its future, which is partly because another big payment to Openreach (BT) will become due around then – something that might require a further injection of funding from Ares.
The situation is separately reported to have triggered discussions at Ofcom over the potential need for a Supplier of Last Resort (SoLR) process, which might be required if the business were to fail. But this is not the first time a SoLR has been discussed in relation to TalkTalk (here). The OTA has previously sketched out a limited SoLR process to help protect customers in the event of a big failure, but it’s largely untested at this scale.
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Reports around the situation have often suggested that BT could potentially take on the base, but rescuing a base of around 1.5 million+ customers could create resource problems for even an ISP of BT’s scale. This is before we consider the likely competition concerns of such an outcome and the huge complexity of TalkTalk’s wider supply chain arrangements with alternative networks etc. (BT doesn’t use altnets, only Openreach).
An Ofcom spokesman said: “We are aware of reports regarding ongoing commercial negotiations and, as you’d expect, are closely monitoring developments.”
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 X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
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I do wonder if we’ll see a breakup of the retail side (eg BT getting the Openreach customers, Sky or Vodafone taking the Cityfibre side) and PXC then ends up being its own casualty as none of the buyers will need to use that network for very long.
Though I’d wonder what the business case is for anyone buying TT’s customers. They are, to put it politely, probably the most “price sensitive” base out there. Is it worth the cost and the major integration challenges for little revenue per customer?
I think we’d soon find out that any SoLR process isn’t worth the PDF its stored on.
Every customer base has an worth in terms of customer acquisition and a contract short term revenue stream (before they potentially churn). It may not be much but unlikely it will not be £0
That price will be discovered if Ofcom has to instigate a “supplier of last resort” process for a sale of the TT businesses as part of an administration. I would not be surprised if there is some sort of rapid auction process (for speed, this could be sealed bids or real time “reducing price” aka “Dutch” auction).
An administration would see BT Openreach and Cityfibre treated as creditors, and they will get a small percentage of what they are owed. Another outcome is if Talktalk enters a creditor voluntary arrangement process with their big debtors as an attempt to reset the business, and that might see Talk Talk milking their out of contract customers (excl social tarriff) with big price rises, also withdrawing social tariff to new customers, and thus kicking off an orderly exit and rundown of the business.
“Price sensitive” is putting it mildly. On paper, the customer base would be a perfect fit for BT’s relaunched PlusNet brand; but as PN is now broadband only then that comes with its own headaches.
Ultimately the customer base’s price sensitivity has been the cause of this. They’ve demanded better and faster broadband for less in real and actual terms than they were paying for dialup twenty years ago. TalkTalk can’t cut costs any further, can’t raise prices, and are doomed to fail sooner or later.
Small note. But TalkTalk doesn’t have a proper social tariff, only a very limited offer for job seekers. I doubt many people even know that exists, so it’s probably a moot point.
Later articles on ISPReview indicate that an aquisition by Opus may now be close to approval.
BBC Radio 4 Today programme also covered this news, and I think a customer valuation of £60 was mentioned (I wasn’t fully awake so check that for yourself on BBC Sounds, sometime between 7:10 and 7:45 I think). I don’t think it was a total valuation of £60m
Could create a great deal of migration work for Openreach while they are simultaneously taking orders for the last WLR assets off the PSTN. Probably not ideal timing so wonder if there are enough resource slots – any SoLR company selected by Ofcom will want to move users to their own platform(s) and not use PXC infrastructure.
This is unfortunate. TalkTalk has been doing its best, within its means, to turn around the businesses. However, I suspect circumstances within the financial markets and the speculation amongst traders of four more base-point rises to follow the Fed’s announcements of last week will not have helped.
Administration of the businesses would have a rippling impact on the market sector creditors, who would be unlikely to get anything back.
Doing its best?
TalkTalk used to be known for their budget prices. Sky is now cheaper.
Make of that what you will.
@Retro:
I am not talking about pricing or customer service perceptions; I am referring to the efforts to turn around the businesses under difficult circumstances.
The downfall of TalkTalk Group/PXC/TalkTalk Consumer needs to be studied. Absolute failure of leadership.
I wonder why Octopus are withdrawing from the running. Either something very wrong at PXC, or Octopus’s investors don’t have faith in Fern given their poor decisions in the sector to date
Probably for the same reasons TalkTalk are failing as a business, competition and margin pressure. TalkTalk is a visible example of what happens when debt interest rates climb to unaffordable levels, ALTNET’s are seeing the same refinancing issues. The ALTNET slow motion car crash is playing out in real time, in spite of OFCOM rigging the game in their favour.
Before the 2008 crash, current interest rates would have been regarded as low. Since then Companies have saddled themselves with debt apparently assuming money would always come for near free, unfortunately that was never likely to be the case.
Octopus have probably lifted the lid and seen the rats nest that lurks beneath, then sensibly walked away.