Having started out as a mere irritant to BT, TalkTalk has grown into its third-biggest broadband competitor, behind Sky and Virgin. It still functions mainly as a local loop unbundler, installing equipment in exchanges the incumbent has been forced to open up to rivals, but has ambitions to be a major infrastructure player in its own right. It's also emerged as a UK cheerleader for quad-play and is expanding its mobile offer into 4G territory through an agreement with O2 it signed late last year.
Table 2: TalkTalk at a Glance
|FY 2013/14||YoY change|
BT's Patterson mentioned TalkTalk in the same breath as Virgin when highlighting his quad-play challenges, and the merger between BT and EE would have no bearing on TalkTalk's arrangement with O2. Unfortunately, though, TalkTalk's broadband ties to BT are becoming increasingly strained. Unbundling is an option only in the case of old-fashioned copper broadband services, which means TalkTalk is effectively just reselling a BT service when it comes to the higher-speed fiber stuff. (See BT Locks Down £12.5B EE Takeover Deal.)
Judging by TalkTalk's last earnings announcement, this isn't working out too well. While TalkTalk is growing, it isn't advancing as quickly in the UK's superfast broadband market as BT. It's no wonder, says TalkTalk, because BT is a greedy and unfair landlord, charging way too much in rent and then having the effrontery to open a discount retail outlet next door. With that kind of "margin squeeze" going on, how is TalkTalk supposed to make a profit? (See Quad-Play Cheerleader TalkTalk Falls Further Behind BT.)
TalkTalk is hoping that life will get tougher for BT as a result of new margin-squeeze regulations, but it would obviously prefer to cut the cord entirely. In the city of York, in northern England, it may soon get its chance. Through a partnership with Sky and an infrastructure company called CityFibre , TalkTalk is rolling out an FTTH network that will go live in 2015. The deployment will cover only 20,000 UK homes, but the partners plan to introduce FTTH services to another two cities and TalkTalk has said it could ultimately address as many as 10 million homes across the country. (See CityFibre Aims for BT's Wholesale Business and TalkTalk's Small Fiber Beginnings.)
In the meantime, the operator has been talking up its quad-play success, claiming to have beaten Vodafone on SIM card activations in December. Should 3 pull off a merger with O2, TalkTalk may gain access to the UK's biggest mobile network thanks to its MVNO agreement with the latter. Dependency on others, then, is still very much its modus operandi. (See Hutchison Offers $13.9B for UK's O2, Hutchison in Talks to Buy UK's O2 – Report and Could Li Ka-Shing Crash BT's M&A Party?.)
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