CityFibre completes £200mn FibreNation acquisition

With TalkTalk shareholders approving the sale of FibreNation to CityFibre for £200 million, the wholesale infrastructure challenger has increased its rollout target to 8 million premises.

With an existing FibreNation network in York, construction projects underway in Harrogate and Dewsbury, as well as plans slated for Bolton, CityFibre has now set its sights on 62 towns and cities outside of London for fibre. The rollout of services to 8 million premises will eventually span to 100 towns and cities, as CityFibre continues its mission to be a scaled and nationwide competitor to Openreach in the wholesale segment.

“In the face of the rapid spread of the Coronavirus and its unprecedented impact on the UK’s society and economy, we believe that the need for world-class digital infrastructure has never been greater,” said CityFibre CEO Greg Mesch.

“Completing our acquisition of FibreNation marks an acceleration in our ability to deploy the critical future-proof digital infrastructure our country needs. By significantly expanding our rollout ambition to up to 8 million premises, CityFibre is helping to answer the call for a full fibre Britain.”

What this means for TalkTalk remains to be seen, though it appears its mission to challenge the ISP market by both owning the infrastructure and the relationship with the customer is drawing to a close. Sceptics might suggest this transaction is a sign of a struggling business, as a result of the lower-cost fibre services and the vast expense of deploying full-fibre networks, weighing heavily on the spreadsheets.

“The sale of FibreNation to CityFibre, in combination with a competitive wholesale agreement, enables us to continue our strategy to accelerate TalkTalk’s fibre growth for our residential and business customers, thereby delivering a superior customer experience at an affordable price,” said TalkTalk CEO Tristia Harrison.

This is of course another step forward for CityFibre. This is a company which is cash rich, thanks to it being acquired by a Goldman Sachs owned fund, allowing for aggressive construction of full-fibre networks, though acquisition is in the heritage of this business. Let’s not forget, CityFibre exists thanks to the acquisition and integration of distressed fibre businesses (H2O Networks, Fibrecity Holdings and Opencity Media, for example) in 2011.

On the construction front, CityFibre has been given the greenlight to continue its ambitious rollout from the UK Government. Prime Minister Boris Johnson has paid particular attention to the progress being made in the broadband segment, and recently requested deployment should continue during the outbreak as it will allow both society and the economy to function and to enable rapid economic recovery when the crisis is over.

CityFibre buys FibreNation from debt-laden TalkTalk for £200 million

CityFibre has announced it will acquire FibreNation from TalkTalk for £200 million, as the latter has struggled to source funds to help it meet the three million FTTH connections it targeted.

As part of the deal, TalkTalk will become a wholesale customer across both consumer and business markets. Work has already begun on the full-fibre network, offering services to more than 100,000 premises in York and Dewsbury, and even with projects set to break ground in Harrogate, Knaresborough and Ripon, reaching the 3 million objective was becoming more difficult to imagine.

With cash-rich backers in the form of Goldman Sachs, CityFibre can more realistically deliver on these promises. The firm has upped its target to 8 million FTTH homes-passed by 2025, up from 5 million.

“Today’s announcement establishes CityFibre as the UK’s third national digital infrastructure platform allowing millions more consumers and businesses to benefit from access to faster, more reliable services,” said CityFibre CEO Greg Mesch.

“The UK is a service-based economy, and this runs best on full fibre. Ensuring national coverage is critical and this can only be achieved by driving infrastructure competition at scale. This deal demonstrates the appetite from industry to see it established.”

Rumours of this transaction has been swirling through the industry for some time now, though it appears the talks were put on hold following the free-broadband-for-all pledge made by the Labour party ahead of last months’ General Election. Nationalisation of Openreach would certainly undermine investment decisions, though the duo now believe the deal should be complete by March.

For CityFibre, this is a page from the playbook of old. This is a firm which was founded after purchasing and merging several, independent distressed financial assets.

FibreNation was founded in 2018 as an independent company to deliver the TalkTalk fibre rollout strategy. Under the leadership of CEO Tristia Harrison, TalkTalk has evolved into a much more combative telco, attempting to disrupt the connectivity status quo and regularly criticising its more established rivals. Harrison’s management and PR approach seems very similar to CityFibre CEO Greg Mesch.

Taking advantage of the enthusiasm in fibre-connectivity, TalkTalk set out an ambitious target of reaching 3 million homes with full-fibre broadband by 2025. However, attracting investment from third-parties soon appeared to be the only means by which this could be done. This is where TalkTalk has struggled in recent months.

Infrastructure investor InfraCaptial, part of the M&G Group, looked to be the most likely candidate to foot the £1.5 billion bill, though talks fell through. Reports suggest InfraCaptial did not value an 80% stake in FibreNation in the same way as TalkTalk. Since that point, TalkTalk has been in discussions with the likes of iCon and Macquarie, though it seems CityFibre was the best option.

While TalkTalk will become the anchor tenant for the network as it is being deployed, this is far from best-case scenario. TalkTalk has said the funds will be used to ‘strengthen the balance sheet’, which could mean numerous things, though as the team reported net debt of £1.041 billion during the last earnings call, it would be fair to assume it will be used to reduce the burden.

For CityFibre, this is a win. The company was founded by collecting distressed fibre assets and merging into a single entity, and it has spoken about doing the same to fuel growth in the future.

CityFibre has ambitions to challenge the likes of Openreach and Virgin Media on a nationwide, scaled basis, though the number of ‘alt-nets’ is creating a fragmented competitive landscape. This is good for the consumer, as price wars will emerge, though it is not sustainable for the industry. However, if you have a cash-rich parent-company like CityFibre, it is a waiting game; smaller fibre companies will become financially stressed, presenting good value for network growth by acquisition.

Adding FibreNation’s assets into the mix, CityFibre will soon have a fibre footprint in more than 100 towns and cities outside of London. It is quickly achieving the scaled vision the management team have often spoken about and will soon become a much more viable rival to the Openreach wholesale business.

As a result of the agreement with TalkTalk, CityFibre has also had to restructure its partnership with Vodafone. The original agreement offered exclusivity for Vodafone to deliver fibre services for the time which networks were being deployed in each city, though the new agreement offers Vodafone 12-month exclusive basis as homes become available for service in each of the 12 towns and cities covered in phase one of the deployment. CityFibre will now be free to discuss terms with other ISPs.

With Vodafone and TalkTalk confirmed customers of CityFibre, and rumours swirling that it might be about to poach Sky from Openreach, the firm is adding commercial credibility to an extensive bank account. It does appear CityFibre is evolving from the moany, thorn in the side it was a few years back, to a genuine, nationwide alternative to Openreach.

Mesh wifi goes mainstream as Amazon acquires Eero

Amazon’s push into the connected home took another step with the acquisition of mesh wifi specialist Eero.

Mesh wifi has been put forward as the next generation of wifi router technology, which uses multiple nodes to not only resolve coverage issues but also create an electronic map of the home such that your interaction with the network can have a positional element. Qualcomm has been bigging up mesh for a while and Samsung has gone big on it in the US, where it seems to have the greatest consumer adoption.

Eero seems to be one of the more established players over there, so its acquisition by Amazon has raised some eyebrows. It’s perceived as a clever move by Amazon to augment its connected home drive that is focused around its Alexa smart speaker devices. On the flip side there is some disquiet at the prospect of a popular independent tech brand being hoovered up by one of the giants.

“We are incredibly impressed with the Eero team and how quickly they invented a wifi solution that makes connected devices just work,” said Dave Limp, SVP of Amazon Devices and Services. “We have a shared vision that the smart home experience can get even easier, and we’re committed to continue innovating on behalf of customers.”

“From the beginning, Eero’s mission has been to make the technology in homes just work,” echoed Nick Weaver, CEO of Eero. “We started with wifi because it’s the foundation of the modern home. Every customer deserves reliable and secure wifi in every room. By joining the Amazon family, we’re excited to learn from and work closely with a team that is defining the future of the home, accelerate our mission, and bring eero systems to more customers around the globe.”

Coincidentally another major mesh specialist – Plume – has just announced a partnership with UK ISP TalkTalk, to launch some kind of invitation-only early access to its technology. “Since launching Plume in the US, we’ve received a tremendous amount of interest from the UK,” said Sri Nathan, Head of Business Development at Plume. “We are thrilled to deliver a new level of personalisation, connectivity, and security in the home to TalkTalk subscribers.”

The migration of mesh technology into the mainstream is likely to prompt a fresh round of hand-wringing about data privacy. Amazon is already installing listening devices into people’s homes, now it will be offering a wifi system that knows where you are all the time. People are going to get freaked out by the prospect of a tech giant having access to so much personal information, so Amazon has created a fresh PR challenge with this move.

TalkTalk launches subsidiary devoted to fibre roll out

UK ISP TalkTalk is so devoted to rolling out fibre that it has launched a new company – FibreNation – devoted entirely to that.

Apart from the statement of intent this move is noteworthy in so much as it signifies a new, serious competitor to Openreach and Virgin Media in the areas it will operate. It seems to be initially focusing on Yorkshire, but intends to eventually connect three million homes and businesses to ‘full fibre’.

The company will operate as an Openreach-style wholesaler and has apparently already signed up Sky as a customer, which must be delighted to have an alternative to Openreach for its wholesale fixed line needs. The other initial customer, of course, will be TalkTalk itself.

“We’re delighted to launch FibreNation and set out our plan to deliver world class broadband to three million homes and businesses,” said Tristia Harrison, Chief Executive of TalkTalk. “For too long, Britain has trailed the rest of the world when it comes to broadband speed and reliability. We’re determined to change that and invest in the faster, more reliable broadband Britain deserves. This is just the beginning of our plans to be at the heart of Britain’s full fibre future.”

“Investment in ultrafast fibre broadband is crucial for the economic and social vibrancy of our county,” said North Yorkshire County Councillor, Carl Les. “We will be coordinating with TalkTalk through our streetworks team to minimise disruption from the works and ensure this is delivered smoothly so residents can enjoy the benefits of faster, more reliable broadband.”

The leadership of this nascent venture seems to be a bit of a work in progress. It will be chaired by former BT and Telecom New Zealand exec Paul Reynolds but TalkTalk COO Mark Bligh seems to have decided at the last minute not to be its CEO, with that role being taken by Neil McArthur. TalkTalk rather cryptically spoke of Bligh pursuing other opportunities, but he’s still listed as COO on its website and on LinkedIn.

In other news TalkTalk announced a solid set of quarterly numbers, implying some of the turmoil of recent years is behind it, and announced it will be moving its HQ from London to Salford, Manchester. It gave no especially specific reason for the move, but it’s presumably cheaper than London and will be much nearer to all this northern fibre it’s investing in.

TalkTalk takes swipe at competitor over pricing fairness

TalkTalk has launched its Fairer Broadband Charter calling into question whether competitors know the definition of simple concepts such as honesty and fairness.

According to research from TalkTalk, 87% of customers feel it is unfair providers raise prices mid-way through contracts, with 54% of consumers supporting a complete ban on these price hikes. While these might seem like obvious statements to make, they do fit quite comfortably upon the beautifully groomed high-horse TalkTalk CEO Tristia Harrison is trotting along currently.

“Telecoms companies have been ripping-off consumers for far too long,” said Harrison. “The industry has to change to rebuild trust with consumers. We led the way two years ago and became the first provider to guarantee no mid-contract price rises. It’s proved hugely popular and today we’re going even further. Our Fairer Broadband Charter sets out three simple ways we’ll put customers first. I’m challenging our rivals to follow our lead so that the whole industry can rebuild trust with customers.”

While any research conducted or commissioned by a telco should be taken with a plate full of salt, TalkTalk does have a point and the Fairer Broadband Charter should create a position where customers do feel valued. What is quite interesting is a challenger brand actually offering something of value to a customer, instead of initiating a race to the bottom. While lower prices are often appreciated by customers, margins are realised elsewhere perhaps explaining poor performance and woeful customer service. It could be seen as somewhat of a hollow victory.

The Fairer Broadband Charter is essentially a challenge to the industry, with TalkTalk hoping to set the pace with other telcos following suit. Perhaps marketing campaigns down the road will be built on the ‘look what we made everyone else do’ or ‘they all needed to copy us’ messages. It isn’t necessarily the worst idea we have ever come across for a challenger brand.

Looking at the three pillars, the first is a continued commitment to maintaining the agreed upon prices throughout the contract. Sounds simple, but all major ISPs have introduced a mid-contract price hike to some degree over the last 18 months according to TalkTalk. Secondly, a connection guarantee will be introduced, allowing new customers to ditch the contract in the first 30 days if they are not happy. This is not necessarily a new one, as Vodafone introduced such an idea recently. Finally, the TalkTalk team will contact customers before their contract ends to ensure they do not get automatically put onto a higher priced plan upon automatic renewal.

These are of course all nice ideas, but it shows the woeful state of affairs in the telco industry if this new Charter is deemed going above and beyond. In most other industries, this would be considered the status quo or bare minimum requirements. For too long customer satisfaction has been an afterthought, instead focusing on enticing new customers with embarrassingly-poor Kevin Bacon adverts which make the brand seem dated, desperate and as creative as a dull shade of worn leather.

The tide is beginning to turn but the traditional telcos, in both mobile and broadband, are having their hands forced by challenger brands.

UK economy is solid despite infrastructure, but that needs to change – TalkTalk CEO

Dodgy connectivity has not hindered the economy in the past, but the UK cannot rely on precedent if it is to be an economic heavyweight in the future.

“I think it should be said, the economy has been built despite our infrastructure not because of it,” said TalkTalk CEO Tristia Harrison at the Connected Britain event in London.

It is a statement which holds a lot of truth. As an island with a small population and limited natural resources, the UK has always punched above its weight in the global economy. This is due to a number of different factors, access to trade routes in previous centuries laid the foundations, but moving forward heritage means very little. If you don’t have a suitable digital infrastructure, you don’t have a chance in the digital economy.

“Without urgent action, we risk being left behind,” Harrison added.

The UK is currently in a suspect position. FTTH penetration is less than 5%, and while there are some interesting initiatives, positive statements of intent and newly emerging capital, more still needs to be done to ensure the UK does not slip into the realms of mediocrity.

While the government’s role in the whole saga does remain up for debate, we are noticing a slight change in attitude and success. We might make the odd poke at Minister for Fun Matt Hancock and his team, we are starting to feel more confident in his administration.

Last week at 5G World, Hancock commented the government was going to focus on regulating the industry and providing help with investment, but leave the business of telecommunications to the telcos. This was a welcome statement, and this morning Minister for Digital Margot James also added confidence to the role of government.

“I want to talk about what the government is doing to support all the efforts you are doing to get the country super connected more quickly,” James stated during her keynote.

The aim here is simple; rid the country of the digital divide, remove barriers to deployment, aid the telcos with investment and improve the UK’s competitiveness on the international stage. Although we will have to wait a couple of weeks for the Future Telecoms Infrastructure Review to get a concrete idea of the government intentions and role, the comments are encouraging; it’s about creating the right environment for digital to thrive, not getting too involved.

James also feels the £400 million fund to aid the rollout of networks will be a suitable amount of cash, but this is not necessarily the ceiling. While there has been little evidence of the vast investments promised by the government to date, James highlighted her team would be constantly accessing what levels of government investment would be deemed appropriate and within the rules. This £400 million might go up, but we would also like to see more of it actually being spent.

The UK is lagging behind the leaders in the digital world as it stands. There seems to be a lot of talk, a lot of posturing and a lot of disagreements, but sooner or later we will need to see some more concrete action. CityFibre CEO Greg Mesch commented he almost missed the beginning of the conference due to being held up by Openreach roadworks, which he somehow managed to take credit for, so maybe this is the watershed moment we have been waiting for in the UK. Perhaps in 12 months we’ll be writing more positive headlines.

Profits down but prospects up at TalkTalk

TalkTalk has unveiled its full year results and while profits are down, restructuring costs have hit the spreadsheets and the dividend has been cut, so prospects aren’t looking too bad for the group.

The telco has seemingly found itself an inglorious niche. Competitors might be chasing the big bucks and the convergence dream with shiny content offerings and cringe-worthy adverts with irrelevant celebrities, but TalkTalk is offering something a bit more basic; internet for £18.95 a month, take it or leave it.

Compared to this point in 2017, TalkTalk added 190,000 customers in the year, including 109,000 in the fourth quarter, while churn fell to 1.22%, a record for the team. Virgin Media, Sky and BT might be able to offer thousands of hours of viewing pleasure for the consumer, but some don’t want it or can’t afford the premium which is slapped on content deals. Some just want connectivity for a low-cost, and TalkTalk is seemingly here to serve that niche.

“When we reset TalkTalk a year ago, we said we would focus on delivering sustained customer growth whilst radically simplifying the business,” said CEO Tristia Harrison. “One year into the strategy, we are making good progress on both. Our customer base grew by 192k in FY18, underpinned by our unique propositions and our lowest ever churn.

“We have also made real progress in simplifying the business to focus on core, fixed connectivity. This will continue into FY19 with the sale of our direct B2B business, as we focus on cementing our position as the market leader in our core B2B markets, Partner and Wholesale, which represent over 80% of our B2B business and continues to grow strongly.”

Total revenues are down year-on-year, and it has made the decision to sell its direct B2B business to Daisy for £175 million, though prospects do look good. The last 12 months has shown there is appetite in the market for no-frills connectivity offers, revenue is forecast for growth, ARPU is stabilising, customer numbers are forecast to go up, and a fibre-network partnership with the infrastructure investment arm of M&G Prudential looking very promising as well.

Sometimes you don’t need second-rate breakfast-themed adverts, or pointless and cringeworthy cartoon illustrations of public figures, sometimes you just have to offer customers what they want. No-frills connectivity is not glamourous, nor is it sexy, but it seems to be working for TalkTalk.

We need to talk about TalkTalk – Ofcom

UK telecoms regulator Ofcom has done a big survey on customer satisfaction with CSPs and TalkTalk has the lowest customer satisfaction levels.

Ofcom conducted over 3,000 interviews at the start of this year to find out what people think of their communications service providers. The results are split down into landline, broadband and mobile providers but the lowest satisfaction score of all was TalkTalk for broadband. It scored a 72% satisfaction rating according to criteria that you can find more about here.

You can see tables summarising the findings below. TalkTalk was also one of the worst for landline, while Vodafone and Virgin Mobile jostled for bottom spot among the major mobile providers. Plusnet has the highest broadband satisfaction, but isn’t so great when it does screw up, BT/EE seems to have kept on top of its landline service and Giffgaff is kicking ass in mobile.

“People often focus on price when they’re choosing a phone or broadband provider. But there are big differences in the customer service offered by providers,” said Lindsey Fussell, Ofcom’s Consumer Group Director. “We’re encouraging people to look beyond the price and consider customer service too. In such a competitive market, companies simply can’t afford to let their service standards slip. If they don’t up their game, customers can vote with their feet.”

Ofcom also tracked the likelihood of respondents to recommend a service to a friend and the results more or less correlated with the satisfaction scores. It concluded with its standard spiel about how hard it’s working to get telcos to sort themselves out, whil USwitch came out with its usual comments imploring people to used its service if they’re not happy with their current provider.

Broadband

Ofcom May 2018 complaints broadband

 

Landline

Ofcom May 2018 complaints landline

 

Mobile

Ofcom May 2018 complaints mobile


What do you think?

Following comments from the European Data Protection Supervisor, do you feel the internet giants are taking advantage of the digital economy?

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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