TalkTalk has confirmed that they are in “discussions” with Infracapital over a plan to jointly create an independent company, with a total investment of around £1.5bn, that could provide 1Gbps ultrafast “full fibre” (FTTH/P) broadband to over 3 million premises in mid-sized UK towns and cities.
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 and 80% by Infracapital, which could involve a potential equity investment of up to £500m (enabling total investment of c.£1.5bn); InfraCapital contributing £400m and TalkTalk £100m (the new company will then take on c.£1bn in debt). InfraCapital is the infrastructure equity investment arm of M&G Prudential.
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” (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,” said the ISP.
At present TalkTalk already has a Fibre-to-the-Home (FTTH/P) style Gigabit broadband network pilot in the City of York, which was initially built alongside Cityfibre and Sky Broadband. 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).
Back in 2016 TalkTalk said its build costs for the York network had been established at below £500 per home passed (this doesn’t include the final home install) and they claimed to be “increasingly confident of reaching our targeted penetration rate of 30%‐40% and delivering the proof of concept required to expand beyond York” (here).
The new network will naturally be built independently of Openreach, which the ISP said would bring some “much needed competition to the market.” Dare we say that the market for FTTP/H is actually starting to become crowded, not least with big announcements from Openreach (here), Vodafone + Cityfibre (here), Hyperoptic (here) and Virgin Media’s 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.
However at this stage the rollout plans have not been completely fleshed out by alternative network providers and so we don’t know how much overlap will actually exist. Certainly we’d 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).
At present TalkTalk has not confirmed where the new network will be deployed, although further information is expected to be provided “shortly.” In keeping with the FTTH plan they have also proposed a new equity placing (intention to raise up to £200m by way of accelerated bookbuild), which will see the Executive Chairman and other Directors participate by contributing up to £40m. Dividends have also been cut to help pay for the work.
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” (FTTC 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%.
Elsewhere TalkTalk Business Ethernet & EFM base grew by 1.8k new lines (total of 48,000) and overall headline group revenues hit £388m (excluding Carrier of £20m and Off-Net of £6m), which increased by 1.0% year-on-year during the quarter. On-net revenues at £316m were flat on the same period in the prior year.
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.