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BT takes on TalkTalk's 2.5 million customers in a 400 million pound rescue from administration
BT Group will buy TalkTalk out of administration, debt-free, at a cash cost it puts at 400 million pounds. Once a regulatory process ends, TalkTalk's wholesale customers, including connections that support health, defence and emergency services, would be buying from BT.
The Board Room · Leadership desk
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What happened
- TalkTalk, the UK's fourth-largest broadband company, has shrunk from 4 million customers in 2019 to about 1.5 million and lost money on 1.2 billion pounds of revenue.
- Clive Selley, who ran Openreach for more than 10 years and took over BT International in April, will lead the stabilisation and integration planning.
- Martijn Blanken becomes chief executive of BT International and stays chief executive-designate of BT's proposed joint venture with Verizon.
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Why it matters
- constraint Organisations that used TalkTalk as a second supplier alongside BT lose that diversity on completion and would need another provider to restore it.
- cost BT's owners absorb about 160 million pounds of TalkTalk losses and forgone Openreach money before any of the value Kirkby says will come over time.
- decision The regulatory review now has to weigh BT's claim that it was the only viable rescuer against the loss of the fourth-largest broadband provider as a rival.
- constraint With Blanken running BT International and preparing the Verizon venture together, BT's international work gets less senior attention while TalkTalk is integrated.
BT's 400 million pound figure is an estimate of total cash impact, and BT put a size on only two of its parts [3]. A trading loss of 60 million pounds and 100 million pounds otherwise due to Openreach add up to 160 million pounds [1]. That leaves about 240 million pounds to cover the consideration, the transaction and administration costs, and working capital [2]. BT did not say how much of that goes to TalkTalk's creditors. The largest of them agreed the deal [1].
The Openreach line connects the cost to the choice of executive. Clive Selley will lead stabilisation and integration planning [4]. He ran Openreach for more than 10 years before BT made him head of its international business in April [5]. So the executive planning the integration spent more than a decade running the business that will not receive the 100 million pounds BT counts in its cost [3].
BT is buying a shrinking business. TalkTalk is the UK's fourth-largest broadband company [10], and it had about 1.5 million customers, down from 4 million in 2019 [11]. That is a fall of 62.5% [3]. Over the past 12 months it reported 1.2 billion pounds of revenue and was loss-making [9]. "Our immediate priority is to stabilise the business and provide a safety net for the households and businesses who rely on TalkTalk," Allison Kirkby, BT's chief executive, said [13].
For anyone buying connectivity from TalkTalk, the trade-off is continuity this quarter against supplier choice later. BT says TalkTalk serves 1 million wholesale customers. They include connections that support critical national infrastructure providers in health, emergency services, defence, education, transport, banking and government [8]. Both the wholesale arm and the consumer arm go to BT [2]. "Once the regulatory process has been concluded, TalkTalk's customers will benefit from access to the UK's best network, and the full range of market-leading products and services that BT offers," Kirkby said [14]. A public body that bought from TalkTalk to keep a second supplier alongside BT would, after completion, be buying both services from one group [2].
That buyer would object that the rescue removes the reason it chose TalkTalk in the first place. Kirkby said "BT acquiring TalkTalk is now the only viable option to keep millions of customers connected and supported" [12]. BT said it approached TalkTalk's directors and offered to step in immediately because it "recognised the risk to the country, and especially vulnerable customers and key public services, should the company collapse" [7]. In my view the continuity case is the stronger one this week. The regulatory process Kirkby referred to will decide whether losing an independent supplier is an acceptable price [14].
The staffing move comes in a sequence of its own. Selley took over BT International in April [5], and he now hands it on. Martijn Blanken becomes chief executive of BT International and stays chief executive-designate of BT's proposed international joint venture with Verizon [6]. This quarter, BT has assigned an executive with more than a decade at Openreach to the rescue [5]. Next quarter, one person runs the existing international business and the planned Verizon venture at the same time [6].
What to watch
- Whether the regulatory process attaches conditions to BT's ownership of TalkTalk's wholesale arm and its 1 million customers.
- A breakdown of the roughly 240 million pounds BT has not itemised, including what TalkTalk's largest creditor receives.
- Who runs TalkTalk after Selley's stabilisation phase, and whether Blanken keeps both international roles as the Verizon venture forms.