TalkTalk has put 136,000 of its broadband subscribers up for sale to either BSkyB or BT as part of its plans to increase its profitability in the next few years. The customers comprise the company’s ‘off-net’ base, meaning they are served via BT equipment in local exchanges on a wholesale basis, rather than via TalkTalk’s own. That makes them less profitable and a drag on plans by Dido Harding, TalkTalk’s chief executive, to increase its profit margin by more than 8 points to 25% in 2017.
Keith McMahon, a telecoms analyst at STL Partners, valued TalkTalk’s off-net subscribers at less than £10m. TalkTalk confirmed it will offload then this year. Virgin Media has reportedly also put its off-net base, which is similar size, up for sale. BSkyB and BT, fierce rivals in the broadband market, are the only likely buyers for both because of their scale.
TalkTalk has said it will not install equipment in any more local exchanges because those remaining serve too few customers to justify the outlay. BSkyB’s calculations are different because of its more than 10 million television subscribers and BT has equipment in every exchange already.
Confirmation of the sell-off came as TalkTalk reported its first annual revenue rise since it was spun off from Carphone Warehouse in 2010. Turnover increased 3.4% to £1.73 billion on the back of strong growth in business customers and its television service. TalkTalk TV reached the one million customers mark this week.
The top line growth came at a cost to TalkTalk’s profitability as it invested more heavily on promotion and offers for new customers. Pre-tax profit fell by nearly three quarters to £31 million as it spent an extra £84 million on marketing and subscriber acquisition compared with the previous year. It meant overall ebitda (earnings before interest, depreciation and amortisation) margin was 12.3%. TalkTalk has built its television business in 18 months, very quickly compared with BT.
Ms Harding said: “We have built as TV business with over one million customers in just 18 months – a quarter of our total customer base. We continue to grow faster than all the other UK TV operators put together and are confident that in time, all our customers will take TV.” Total broadband subscriptions increased by 133,000 over the year to 4.2 million. Churn, the rate at which customers switched away from TalkTalk, was “significantly lower” among those who also take TalkTalk TV.
The company said demand for fibre broadband from its customers was “modest”, accounting for 5% of its main customer base and 30,000 net new subscribers. TalkTalk is campaigning for regulators to impose price controls on BT’s new fibre optic network to make it more profitable for rivals. Ms Harding dismissed reports linking her with the top job at Tesco, her previous employer. She said: “That’s my past life. Why would I want to be anywhere else?”