{"id":15448,"date":"2018-02-08T07:17:15","date_gmt":"2018-02-08T07:17:15","guid":{"rendered":"https:\/\/www.ispreview.co.uk\/?p=15448"},"modified":"2018-02-08T08:32:05","modified_gmt":"2018-02-08T08:32:05","slug":"isp-talktalk-propose-full-fibre-broadband-3-million-uk-premises","status":"publish","type":"post","link":"https:\/\/www.ispreview.co.uk\/index.php\/2018\/02\/isp-talktalk-propose-full-fibre-broadband-3-million-uk-premises.html","title":{"rendered":"ISP TalkTalk Propose Full Fibre Broadband for 3 Million UK Premises"},"content":{"rendered":"

Budget ISP TalkTalk<\/a> has confirmed that they are in “discussions<\/em>” with Infracapital over a plan to jointly create an independent company, with a total investment of around \u00a31.5bn, that could provide 1Gbps ultrafast “full fibre<\/em>” (FTTH<\/a>\/P) broadband to over 3 million premises in mid-sized UK towns and cities.<\/p>\n

The debt laden operator revealed the proposal as part of their latest trading update to the end of 2017 (Q3 FY18). Under the plan the new company would be 20% owned by TalkTalk<\/a> and 80% by Infracapital<\/strong>, which could involve a potential equity investment of up to \u00a3500m<\/strong> (enabling total investment of c.\u00a31.5bn);\u00a0InfraCapital contributing \u00a3400m and TalkTalk<\/a> \u00a3100m (the new company will then take on c.\u00a31bn in debt). InfraCapital is the infrastructure equity investment arm of M&G Prudential.<\/p>\n

At present the details are somewhat thin on the ground but TalkTalk said they would be a “founding wholesale customer of the new company, providing a minimum volume commitment<\/em>” (i.e. the anchor tenant), which suggests that other operators may be involved. “Key to this will be a competitive wholesale price and fast customer take-up,<\/em>” said the ISP.<\/p>\n

Charles Dunstone, Executive Chairman of TalkTalk, said:<\/strong><\/p>\n

“It’s 12 months since I announced my intention to take a more active role in the management of TalkTalk. Since then, we have reset the business and returned it to quarter-on-quarter customer growth.<\/p>\n

By signing heads of terms with Infracapital we are making good progress towards putting TalkTalk at the heart of Britain’s fibre future by building a full fibre network, bringing faster, more reliable internet to millions of homes and businesses.<\/p>\n

Looking ahead we see real opportunity to continue growing the core business whilst also investing in full fibre. We have therefore strengthened our balance sheet and temporarily reduced our dividend to take full advantage of the opportunities available.<\/p>\n

We anticipate revenue growth and strong earnings growth in the year ahead, as the benefits of a growing customer base and rigorous cost control begin to deliver the results this business is capable of.”<\/p><\/blockquote>\n

At present TalkTalk already has a Fibre-to-the-Home<\/strong> (FTTH<\/a>\/P) style Gigabit broadband network pilot in the City of York<\/strong>, which was initially built alongside Cityfibre<\/a> and Sky Broadband<\/a>. The York network currently covers about 14,000 homes and is already in the process of being expanded to reach 54,000 premises by the end of 2020 (note: Sky has stopped investing in the York extension).<\/p>\n

Back in 2016 TalkTalk said its build costs for the York network had been established at below \u00a3500 per home passed<\/strong> (this doesn\u2019t include the final home install) and they claimed to be “increasingly confident of reaching our targeted penetration rate of 30%\u201040% and delivering the proof of concept required to expand beyond York<\/em>” (here<\/a>).<\/p>\n

The new network will naturally be built independently of Openreach<\/a>, which the ISP said would bring some “much needed competition to the market<\/em>.” Dare we say that the market for FTTP<\/a>\/H is actually starting to become crowded, not least with big announcements from Openreach<\/a> (here<\/a>), Vodafone<\/a> + Cityfibre<\/a> (here<\/a>), Hyperoptic<\/a> (here<\/a>) and Virgin Media<\/a>\u2019s on-going rollout all seeming to be competing over some of the same urban areas. Not to mention the smaller players like Community Fibre etc. We wouldn’t be surprised to see some consolidation in the market once full fibre networks expand.<\/p>\n

However at this stage the rollout plans have not been completely fleshed out by alternative network providers and so we don\u2019t know how much overlap will actually exist. Certainly we\u2019d hope that the ISPs will try to minimise incidents of multiple overlapping fibre optic networks, which could also create an ugly civil engineering situation for locals (i.e. pavements being repeatedly dug up).<\/p>\n

Matt Hancock MP, DCMS UK Secretary of State, said:<\/strong><\/p>\n

“We strongly welcome this commitment by Talk Talk to take full fibre broadband to 3 million homes and businesses in the UK. This investment will make significant strides in giving Britain the connectivity we need to be fit for the future. It’s fantastic to see Talk Talk stepping up to the plate – we want a healthy, vibrant, competitive next generation broadband market and are working hard to deliver the investment and good jobs that comes with it.”<\/p><\/blockquote>\n

At present TalkTalk has not confirmed where the new network will be deployed, although further information is expected to be provided “shortly<\/em>.” In keeping with the FTTH<\/a> plan they have also proposed a new equity placing (intention to raise up to \u00a3200m by way of accelerated bookbuild), which will see the Executive Chairman and other Directors participate by contributing up to \u00a340m. Dividends have also been cut to help pay for the work.<\/p>\n

Meanwhile the rest of their Trading Update was quite vague (this is normal as they usually only give detailed updates every 6 months), although we note that they added a further 89,000 “fibre<\/em>” (FTTC<\/a> and a few FTTH\/P) customers during the quarter and delivered total on-net base growth of +37k across all products. On-net churn also fell to 1.3%.<\/p>\n

Elsewhere TalkTalk Business Ethernet & EFM base grew by 1.8k new lines (total of 48,000) and overall headline group revenues hit \u00a3388m (excluding Carrier of \u00a320m and Off-Net of \u00a36m), which increased by 1.0% year-on-year during the quarter. On-net revenues at \u00a3316m were flat on the same period in the prior year.<\/p>\n

The biggest challenge for TalkTalk will be delivering on its full fibre commitment, while at the same time as dealing with high debt and profit warnings.