It’s not an unreasonable view of BT’s hurried weekend acquisition of TalkTalk. Once upon a time, TalkTalk was seen as a plucky upstart performing the useful role of irritant to BT’s giant Openreach broadband operation. Now the challenger is being consumed by the dominant player via a pre-pack administration that minimises short-term political headaches.
Here’s the problem, though, with the cosy stitch-up thesis. For all the howls of outrage, it’s hard to see what the culture secretary, Lisa Nandy, who gave her blessing by issuing a little-used public interest notice, was supposed to do differently. Alternative approaches, notably a chaotic collapse of TalkTalk without a rescue plan for the customers, risked worse outcomes.
OK, perhaps the worst fears of GP surgeries and hospitals being disconnected at a stroke, and thousands of vulnerable customers losing their internet connection, were overdone. But, in Nandy’s shoes, you probably wouldn’t take the risk. TalkTalk, after all, had had months to find a buyer but failed to land a credible deal even when its retail division and its wholesale unit, PXC, were up for grabs separately.
Disappointed would-be buyers blame the reluctance of BT, as the critical supplier to TalkTalk, to extend financial support to a new ownership vehicle. From BT’s point of view, however, one can see why another private equity backer for TalkTalk wouldn’t feel like an improvement on the last one. As it is, BT will be booking £100m as a non-payment of a debt even as it takes control.
The deep problem here is that TalkTalk – Sir Charles Dunstone’s creation more than 20 years ago – hasn’t been doing much real challenging work of late. After going through the refinancing wringer more times than is healthy, it was a financially distressed company. At the last count, borrowings were in the region of £1.5bn, a staggering sum for a loss-making business with only 1.5 million retail customers and 1 million wholesale ones.
Telephony, remember, tends to be a low-margin game even when things are going well. That is not to say the politicians get a free pass. Successive governments have been told many times by the regulator Ofcom that a “supplier of last resort” regime should be in place in the broadband market, just as it is in energy and water.
Extract — continue reading at the source.
