TalkTalk, the wholly owned subsidiary of the group still surprisingly known as Carphone Warehouse, is acquiring Tiscali UK for £236 million in cash. It suddenly becomes the largest residential broadband provider in the country, although that is still disputed by BT. It is still not clear what that means for the future of Tiscali TV, the only internet protocol television service in the United Kingdom.
With the acquisition of 1.45 million Tiscali customers, TalkTalk will have a total of 4.25 million broadband homes, a quarter of the residential market in the United Kingdom, overtaking Virgin Media wth just under 4 million and coming second only to the BT retail business, which has 4.7 million broadband customers, although an unstated number of these are small businesses.
“Six years ago, no one could have imagined that we would build the largest residential broadband provider in the UK, but our determination to offer incredible value with the latest technology has propelled us to being the most popular provider in the country,” said Charles Dunstone, the founder and chief executive of Carphone Warehouse. He transformed the market by launching TalkTalk in 2003 and offering “free” bundled broadband, a move which he admitted “caused us and our customers some sleepless nights at the time” and no doubt concerned a few competitors.
It could represent a missed opportunity for BSkyB, which walked away from a deal with Tiscali when it would not accept an offer nearly twice that ultimately agreed by TalkTalk. Sky had baulked at the then asking price of £550 million and was reportedly offering £450 million when talks broke down. So the Carphone Warehouse bid represents a fairly desperate deal for the indebted Tiscali parent company in Italy.
The cash deal is expected to complete by the end of June, subject to approval by the competition authorities. The price paid is probably far lower than the typical cost of customer acquisition.
The United Kingdom division of Tiscali has been very quiet amid takeover speculation. It has not issued a press release in nine months and there was no news of the announced sale on its web site.
Chief executive Mary Turner, who helped create the business in Britain from a disparate group of internet service providers, including LineOne, which she previously ran, wrote to customers to re-assure them that service would continue as normal and without interruption. That might be a novelty for some subscribers, who may hope services will improve as part of a larger operation.
As one of the largest broadband service providers in Britain, TalkTalk will no doubt come under increasing scrutiny.
The interim Digital Britain report proposed a universal service obligation to provide at least 2Mbps access across the country. This was mainly seen as an issue for the incumbent BT, from which other providers generally lease lines. Although an unchallenging objective, as a leading service provider, TalkTalk may have to share some of that social responsibility.
Then there is the question of Phorm, the controversial behavioural advertising outfit which has had talks with the broadband provider, which has yet to test the technology, unlike BT which allegedly failed to receive the necessary consent from its customers before conducting trials. Any decision about whether to adopt the system could now be more significant. TalkTalk continues to talk of the primacy of customer privacy but is keeping its options open.
The future of the Tiscali TV broadband television service, which is believed to have less than 100,000 subscribers, remains uncertain. It has languished since Tiscali took over the former HomeChoice service in London from Video Networks and rolled it out across other cities.
A TalkTalk representative told informitv that its priority is to Tiscali TV customers and they will get uninterrupted service. He said: “We will have more to say once the deal is complete at the end of June”.
One possibility would be to offer the television service to the broader base of broadband users, in which case it could achieve more significant scale. On the other hand, it could be quietly discontinued, in which case the United Kingdom would lose its only true internet protocol television service.
Had Sky, with just over 2 million broadband customers, acquired another 1.5 million from Tiscali it would still have had slightly fewer than Virgin Media, with 3.7 million broadband customers on its cable network, and just under four million in all. Now it faces a larger competitor in the broadband market.
Carphone is expected to demerge its retail and telecommunications interests sometime in the next year. Its chief executive has dismissed speculation that it will sell the resulting communications business, but Sky could always come back to the table for more TalkTalk.