UK local loop unbundler TalkTalk claims its recent launch of quad-play services has been met with an enthusiastic response even though rivals have been calling quad-play into question.
Providing a trading update for the October-to-December quarter, the country's fourth-biggest broadband operator appears to have signed up more than 50,000 mobile customers since its November launch, capturing 11% of the SIM card market in December.
TalkTalk says this puts it ahead of Vodafone UK , the country's third-biggest mobile network operator, as well as supermarket chain Tesco , which is providing mobile services through a mobile virtual network operator (MVNO) agreement with number-two player Telefónica UK Ltd. .
TalkTalk's own MVNO agreement is with Telefónica UK, which trades using the O2 brand and seems to be emerging as something of an MVNO linchpin, having last week signed a deal with pay-TV giant Sky . (See Eurobites: Sky Goes Mobile With O2.)
O2 is currently the target of a £9.25 billion ($14 billion) takeover attempt by Hong Kong's Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY) -- which already owns Three UK , the UK's smallest mobile network operator -- and its MVNO deals could obviously be affected by a merger. (See Hutchison Offers $13.9B for UK's O2 and Hutchison in Talks to Buy UK's O2 – Report.)
Intriguingly, 3 CEO David Dyson was earlier this week reported by the UK's Financial Times newspaper (subscription required) to have said there does not appear to be much demand for quad-play services, suggesting that operators would have to attach heavy discounts to their offers to attract subscribers.
"It's about more than quad-play," said BT CEO Gavin Patterson during an earnings call with analysts last week. "It's about convergence of networks and creating a single network with a single platform that is able to meet the needs of customers wherever they are." (See BT Puts G.fast at Heart of Ultra-Fast Broadband Plans and BT Plots G.fast Rollout, Mobile Launch.)
Besides drawing attention to its quad-play activities, TalkTalk flagged a 4.2% increase in revenues during its third quarter, to £449 million ($677 million), compared with the same period of 2013. That comparison may, however, have benefited from an accounting adjustment in 2013 following a ruling by tax authorities on the treatment of value-added tax.
TalkTalk is still guiding for a 4% increase in full-year revenues but says cost savings are likely to be £10-15 million ($15.1-22.6 million) lower than previously expected because of investments it is making to improve long-term operational efficiency. It also expects to register operating losses of £3-5 million ($4.5-7.5 million) this quarter related to its £5 million ($7.5 million) purchase of Blinkbox, a video service, from Tesco in January.
The operator aims to increase its EBITDA margin to 25% by 2017, up from just 12.6% in the April-to-September half.
TalkTalk is also losing its broadband battle against BT, on whose networks it relies to provide services. It added 15,000 broadband customers in the third quarter, compared with 119,000 at BT, and flagged the addition of 88,000 fiber customers (meaning the majority migrated from slower TalkTalk services), next to the 209,000 that BT reported. TalkTalk now claims to serve 4.24 million broadband customers in total, while BT has 7.6 million -- 35% of whom are using fiber services.
In its statement, TalkTalk admitted that fiber penetration was still "modest" and implied that BT's wholesale costs were too high for it to compete effectively in this market. It has welcomed the recent decision by regulatory authority Ofcom to investigate whether BT is "squeezing" broadband rivals and says it expects the incumbent will be forced to reduce its wholesale charges in future.
In the meantime, TalkTalk has been exploring ways to wean itself off its broadband dependence on BT entirely. In partnership with Sky and infrastructure provider CityFibre , TalkTalk is currently rolling out its own fiber-to-the-premise (FTTP) network in the city of York and it plans to start offering 1Gbit/s services later this year. (See CityFibre Aims for BT's Wholesale Business and TalkTalk's Small Fiber Beginnings.)
Although the pilot is set to cover just 20,000 households, the companies aim to roll out FTTP networks in two other UK cities, while TalkTalk has previously suggested the 1Gbit/s service could ultimately reach as many as 10 million UK homes.
— Iain Morris, , News Editor, Light Reading