TalkTalk shares hit by £75 million loss and weak outlook

UK telecoms group TalkTalk saw its shares drop significantly upon announcing a negative set of half-yearly earnings.

The data-points most troubling to investors will have been a loss before tax of £75 million, which compares especially poorly with a £30 million profit in the same period last year. To add to the gloom EBITDA was down to £95 million from £144 million a year ago and the company is guiding that full-year EBITDA will be at the low end of guidance.

TalkTalk shares fell by as much as 17% on the announcement, but at time of writing has recovered somewhat to be down more like 10%. One reason for this could be that the company’s claim that these numbers were exceptional due to the strategic measures being put in place, including a change to its MVNO, and a general drive to reposition itself as the leading UK value ISP. Maybe, on reflection, investors were OK with TalkTalk taking a short term hit to give its cunning plan a kick-start.

“When we simplified and reset the business in May we said our priorities were growth, cash and EBITDA, in that order,” said Tristia Harrison, Chief Executive of TalkTalk. “The first half performance shows we are delivering on that plan. We have now delivered a third consecutive quarter of growth in our broadband base, with both Retail and Wholesale bases growing; returned to on-net revenue growth; and delivered lower churn than a year ago.

“Our clear value proposition is resonating strongly against an uncertain economic environment and underpins our plan to simplify and focus all our investment in delivering affordable, reliable fixed connectivity to both homes and businesses”.

“We expect to step up our planned investment in growth in the second half, as we take advantage of the strong demand we are seeing for our fixed low price plans; fibre take up and affordable propositions in both our residential and B2B markets. Our revised strategy of focusing the business on fewer, clearer priorities is re-establishing TalkTalk as the value provider of choice in the UK fixed connectivity market.”

You can see the key numbers below. There seem to have been some exceptional hits involving the MVNO and for general restructuring, but TalkTalk is also spending more on its network and on subscriber acquisition in spite of declining revenues. Even allowing for exceptional items TalkTalk seems to be struggling to balance the books right now and investors are unlikely to cheer up until it does.

talktalk full year outlook

talktalk q3 p&l

talktalkcosts

Ofcom imposes automatic compensation payments on UK ISPs

Most UK internet service providers have signed up to a scheme that will see them automatically compensate their customers for their failures.

Ofcom reckons UK internet subscribers will be due £142 in payouts at current levels of ball-dropping, which will be nine times more than they currently get. While that’s obviously good news for consumers, the amounts involved still seem pretty poor compensation for not being able to get online.

Ofcom ISP compensation

The first lot of £8 only kicks in after you’ve been starved of Netflix, or whatever else you might use your internet connection to watch, for two full days, which seems a bit unsatisfactory. The missed appointment fine is a bit more substantial but the switch-over delay payment is even less.

Apparently ISPs only cough-up 15% of the time they blow it right now, so this is definitely a step in the right direction. BT, Sky, TalkTalk, Virgin Media and Zen Internet have all said they’ll introduce this automatic compensation, with other BT-owned ISPs expected to follow suit. The cash should be automatically deducted from ISP bills, with Ofcom threatening to review it after a year and have a word with any transgressors.

“Waiting too long for your landline or broadband to be fixed is frustrating enough, without having to fight for compensation,” said Lindsey Fussell, Ofcom’s Consumer Group Director. “So providers will have to pay money back automatically, whenever repairs or installations don’t happen on time, or an engineer doesn’t turn up. People will get the money they deserve, while providers will want to work harder to improve their service.”

The most significant impact of this should be to make ISPs prioritise customer service more than they currently seem to. If some senior exec thinks their annual bonus will be hit due to engineers dragging their feet you can bet sorting that out will move right to the top of their priority list, just below golf meetings and power lunches.

The Elephant in the room, of course, is Openreach, which manages much of the fixed line network. It looks like Ofcom hasn’t been very clear about how these automatic payments may be passed on to Openreach if it’s found to have been at fault.

“ITSPA welcomes this important step towards increased protection and redress for consumers who are left without a service due to no fault of their own,” said Eli Katz, Chair of the Internet Telephony Services Providers’ Association. “This approach goes towards assuring continuity of our members’ services. However, ITSPA is disappointed that Ofcom has not been clear on how the regime will be applied to underlying infrastructure providers, such as Openreach, as it is on their networks that faults usually occur. It is a shame that clear rules regarding their payment obligations have not been set out.”

Ofcom wants to force broadband providers to stop lying

The UK telecoms regulator is finally getting around to doing something about dodgy broadband speed claims.

Few other industries can get away with selling their products on the basis of optimistic approximations, as opposed to hard facts, but ISPs have long been an exception. UK consumers typically buy their broadband on the promise that they can expect download speeds of ‘up to’ a certain maximum. In practise, however, the speeds they experience seldom, if ever, come close to that number.

This has long been a source of indignation, not just for consumers but for organisations like the Advertising Standards Authority. The ASA has frequently called out ISPs for taking the piss but the punishment of getting them to amend an advertising campaign that has long since completed is almost entirely useless.

The practise is endemic, as a quick visit to BT’s broadband site reveals. The three packages immediately offered all promote themselves through ‘up to’ speed claims.

BT broadband screen

Hopefully Ofcom will show itself to have more teeth than the ASA and has weighed into the debate by proposing a range of enhancements to its code of practice, which ISPs that have signed up to it are obliged to follow. Here are the extra powers Ofcom wants UK broadband consumers to have:

  • Improve speed information at the point of sale and in contracts, by reflecting the slower speeds people can experience at ‘peak’ times; and by ensuring providers always give a minimum guaranteed speed before sale.
  • Strengthen the right to exit if speeds fall below a guaranteed minimum level. Providers would have a limited time to improve speeds before they must let customers walk away penalty-free. For the first time, this right to exit would also apply to contracts that include phone and pay-TV services bought with broadband.
  • Increase the number of customers who benefit from the codes, by expanding their scope to apply to all broadband technologies.

So instead of (or more likely as well as) a theoretical maximum, ISPs have to offer a guaranteed minimum speed in their sales and marketing collateral. Hopefully there will be proper punishments for consistently failing to achieve these too, but at least they will provide consumers with an easy pretext to switch without fear of recrimination.

“We want broadband shoppers to know what they’re buying, and what speeds to expect,” said Lindsey Fussell, Ofcom’s Consumer Group Director. “So we plan to close the gap between what’s advertised and what’s delivered, giving customers a fuller picture before they commit to a contract. We’re also making it easier to walk away from a contract, without penalty, when companies fail to provide the speeds they promise.”

Here’s what Ofcom would like ISP collateral to look like from now on.

Ofcom ISP screen

Plenty of other people have had stuff to say on this. “By emphasising the slowest speed a customer is likely to get at peak times, speed numbers are likely to more closely match user experience,” said Dan Howdle of cable.co.uk. “Whether or not this benefits the majority of consumers who are, by and large, unaware of how these numbers apply to day-to-day usage is questionable, however.

“New rules on broadband speed advertising would have to be coupled with guidelines to ensure customers are informed as to how the speeds apply to the broadband usage of their household, otherwise it’s just a case of swapping one meaningless number for another.”

“Giving more information on what speeds consumers can expect can be a useful move but burying this more detailed information in each provider’s sales journey will only go so far,” said Richard Neudegg of uSwitch.com. “What we need to see – and what we have been calling for – is for this information to be opened up so that consumers can compare different provider speeds side by side at the point of comparison.”

“The minimum guaranteed speed is currently shown by a number of providers at the time of a sale, but with some it is currently hard to find,” said Andrew Ferguson of thinkbroadband.com. “Making guaranteed speeds more prominent across all providers is an important step, but it needs highlighting that the guaranteed speed referred to is usually the connection speed to the router the provider supplies.

“The difference between the connection speed and a speed test on a perfect computer set-up will usually only be 4 to 10% lower (varies due to technology) but for those connecting at the fastest speeds this becomes visible. For example, a Gigabit connection will have a maximum speed test of 940 to 945 Mbps.”

As ever with Ofcom initiatives, this has to go through a process of public consultation before it becomes a thing and you can get involved here if you want. This feels like a good example of where regulation is a good thing. UK broadband consumers are currently being given dodgy information at the point of purchase and making everyone abide by stronger rules of transparency has no competitive or bureaucratic downside to ISPs. Let’s hope this goes through.