BT plots TalkTalk takeover as cash crisis escalates

Telegraph

a day ago

BT is plotting a rescue of TalkTalk as an escalating cash crisis threatens disruption in the broadband market.
The former state monopoly is in the early stages of exploring a takeover of TalkTalk and its 3.2m customers, according to City sources.
BT is considering a bid for Britain's fourth-largest broadband provider amid fears that its own business could be damaged by the tightening squeeze on TalkTalk's finances.
TalkTalk, which is led by Sir Charles Dunstone, its founder, narrowly avoided collapse last year.
Sir Charles and other shareholders were forced to pump £235m into the company to stave off the threat of insolvency.
That deal provided some breathing space but TalkTalk remained saddled with £1.2bn of costly debt.
The further deterioration of its business, as customers defect to rival broadband providers, has put it back under pressure within months.
TalkTalk lost 400,000 customers last year. It ranked bottom of Ofcom's latest customer service rankings last month with a satisfaction score of 77pc.
One of its listed bonds is now trading at 44p, suggesting uncertainty in the market over whether the company will be able to repay its debts. It was trading at 78p in the pound in late April.
Customer exodus
TalkTalk's challenges have begun to take a toll on BT's Openreach network division, which hosts the vast majority of TalkTalk's customers.
Many of the customers switching away are opting for new challenger networks which have invested in their own fibre-optic networks rather than rented capacity from Openreach.
Openreach lost almost a quarter of a million broadband customers in the first three months of the year, in part as a result of TalkTalk's decline.
TalkTalk has also fallen behind on payments in recent months and Openreach has reportedly threatened to block the company from putting new customers on its network.
Insiders stressed that internal discussions at BT were at an early stage and that a takeover bid had not yet been discussed with TalkTalk.
The combined company would hold a market share of roughly 36pc, strengthening its hand against the fibre-optic challenger and expanding its Plusnet brand, which competes with TalkTalk at the value end of the market.
However it would be likely to attract protests from rivals and scrutiny from competition regulators given BT already holds a dominant position in the broadband market. CityFibre, the largest of the fibre-optic challengers, hosts around 150,000 TalkTalk customers on its network.
A lengthy investigation by the Competition and Markets Authority would raise the risk of further customer losses at TalkTalk that would dilute the appeal of a merger, City sources cautioned.
BT executives are said to be hopeful of receiving support from Ofcom, which would be closely involved in a competition investigation. The telecoms regulator has been monitoring TalkTalk closely amid concern that a collapse could leave millions of customers in the lurch.
Virgin Media O2 has also previously weighed up an approach for TalkTalk as it looks to build up its own wholesale broadband business.
James Ratzer, an analyst at New Street Research, said BT was now a 'more likely acquirer' of TalkTalk than its competitors given the slowdown at Openreach and the potential benefits of a tie-up.
He added: 'It would be an understatement to say that TalkTalk faces a difficult and uncertain future ... This is clearly an extremely high risk investment, but we now believe BT could enter the fray in some potential form increasing the chance of a potential deal.'
TalkTalk, which has been seeking a solution to its financial problems since splitting itself into three divisions in 2023, has been focusing on cost-cutting and asset sales to shore up its balance sheet.
The Salford-based company cut 350 jobs last year as part of a wider plan to strip £120m out of the business. Further job losses are expected in the year ahead. It has also pared back marketing budgets.
But the moves risk fuelling subscriber losses further and discontent over poor customer service.