TalkTalk bolsters wholesale ops with two new divisions

Following its recent shopping spree, UK ISP TalkTalk is having a reshuffle in an effort to tap growing demand for high-bandwidth fibre and Ethernet services.

It has created two new wholesale divisions, one focused on B2B, the other on the consumer market. It also plans to competitively tender its B2B Ethernet supply product in 14 areas of the UK.

“The pace of innovation in both the B2B and consumer wholesale telecoms has accelerated, and businesses and consumers across the UK are requiring more and more usage and great bandwidth connectivity. That is why we are delighted to be announcing these two important wholesale growth divisions as well as a competitive tender for our B2B Ethernet supply,” said TalkTalk CEO Tristia Harrison, in a statement on Monday.

One of TalkTalk’s new divisions, B2B Wholesale Services, includes the recently-acquired assets of rival wholesaler Virtual1, which it agreed to buy in April for an undisclosed sum. The deal, which closed in late May, gave the combined company a 25 percent share of the Ethernet Access Direct (EAD) market, and brought together TalkTalk’s nationwide reach with Virtual1’s portals, automation and API capabilities. The new division will offer high bandwidth services to resellers, aggregators, and system integrators. Services will be sold under both the TalkTalk and Virtual1 brands, and the unit will be led by the latter’s founder and CEO, Tom O’Hagan.

“The combination of TalkTalk’s national scale and Virtual1’s market leading software was always going to be a winner,” said a statement from O’Hagan. “The creation of this new division will allow us to bring all those advantages to customers more quickly and at greater scale.”

The other of TalkTalk’s new divisions, Consumer Wholesale Services, will, as its name suggests, go after the residential market. Last month, TalkTalk agreed to buy rival SSE Phone & Broadband from  OVO Energy. The deal added around 100,000 customers to its broadband business, bringing its total to more than 1 million. TalkTalk’s managing director of wholesale, Nick Gunga, has been put in charge of Consumer Wholesale Services.

“Our vision is to become the fastest growing provider of consumer services in the wholesale market.  We already are market leading in this area, and we can use our experience to further deepen our relationships with our key partners,” he said.

Meanwhile speculation continues to surround TalkTalk regarding its future as an independent entity and its financial and operational performance.

Last week the Telegraphreported (paywall) that TalkTalk’s pre-tax loss in the year to February widened to £28 million from £11 million in the previous year. Churn climbed to 1.6 percent from 1 percent, and excluding acquisitions, its customer base fell by approximately 120,000. Net debt increased by £120 million, bringing it up to £1.1 billion in total. The telco also burned through about £80 million in cash. Buying Virtual1 and SSE Phone & Broadband in quick succession will not have done any good to TalkTalk’s cash or debt position – or both, depending how these deals were structured.

Not only that, but auditor Deloitte highlighted some unusual accounting practices. Specifically that there was a “high level of estimation” in how revenues were recognised, and a “high level of management judgement” in TalkTalk’s decision to record the £31 million it spent on switching customers from copper to fibre as an exceptional item rather than an everyday cost. This is relevant because the amount a company can borrow is affected by its ratio of debt to underlying profitability. Categorising costs as exceptional items does not affect the ratio, but judging by Deloitte’s remarks, TalkTalk might be pushing the boundaries of what is an acceptable one-off cost.

All this is happening as TalkTalk chairman Charles Dunstone allegedly negotiates the sale of the company to Virgin Media O2. The cableco in July reportedly tabled a £3 billion offer for TalkTalk with the aim of transferring the latter’s customers onto its own network. It is understood to be in the middle of conducting due diligence, and hopes to finalise a deal next month.

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