TalkTalk to acquire Tiscali UK

Telco giant Carphone Warehouse has announced that its TalkTalk broadband arm will be acquiring Tiscali UK in a £236m cash deal, bringing the long running saga to an end.

The deal is set to make TalkTalk the largest residential broadband provider in the UK with a combined customer base of around 4.25 million broadband subscribers taking nearly 26 per cent of the market. This compares to 25 per cent held by BT and a 24 per cent share for Virgin Media.

"In one step, it makes TalkTalk the UK’s largest residential broadband provider," said Charles Dunstone, chief executive of Carphone Warehouse.

"It also delivers clear shareholder value with significant enhancement to this year’s earnings per share and substantial synergies to be achieved next year and beyond. We very much welcome Tiscali's UK customers and staff to TalkTalk."

The deal is expected to be completed by the end of June, although it has to receive clearance from the EU competition authority.

"As we understand it, this is essentially just a formality – but the process is expected to last 30 days," added Dunstone.

TalkTalk expects the consolidation of the two businesses and the associated infrastructure will generate annualised savings of between £40m and £50m by March 2011. The majority of this will come from the ability to combine the two networks, reducing expenditure on backhaul, core network and individual exchange costs.

"Internet use continues to grow very rapidly with customers expecting to enjoy an ever increasing diversity of content," said Mary Turner, chief executive of Tiscali UK.

"The combination of TalkTalk and Tiscali will offer our customers, both residential and business, Britain's largest and best fully unbundled network. The enlarged TalkTalk is perfectly positioned to meet and anticipate these demands."

Around half of Tiscali UK's broadband base is unbundled today, compared to over three-quarters (78 per cent) of TalkTalk's existing base. Over the course of the next few years, TalkTalk expects that 80 per cent of the combined group will be on a single, unbundled network, helping to drive the expected savings.

Further savings will come as Tiscali customers are migrated over to TalkTalk's own billing and customer relationship platform over the next 24 months. However features such as the Tiscali web portal and email addresses will be retained.

According to Dunstone, there will be no change for existing Tiscali customers. In fact he believes that they can expect to see their service improve over the coming months as the two networks converge on the back end.

The deal could spell the end of Tiscali's IPTV business, which it adopted with the acquisition of Homechoice.

According to Dunstone, the service is something he will be investigating as a high priority. He pointed out that it currently loses millions of pounds, indicating that it could soon be axed if a way is not found of making it profitable.

The future of Tiscali's wholesale business, which currently has around 100,000 subscribers, is also the topic of some debate, as this is not a market that TalkTalk is in currently.

"We don't fully understand the wholesale market very well as it's not a market we've been in before," explained Dunstone.

"It's something we want to learn about and understand and we'll be taking our decisions from there."

Michael Phillips, product director of comparison site Broadband Choices, saw the deal as largely positive.

"In our two most recent Customer Satisfaction Surveys, TalkTalk has repeatedly scored higher than Tiscali so this should bode well for Tiscali cust omers who will now be part of the same group," he said.

"However, AOL – also under Carphone Warehouse Group ownership – has consistently languished at the bottom of our Customer Satisfaction Surveys so service integration post acquisition will be crucial to determining the customer experience."

With three ISPs now holding over three-quarters of the residential broadband market, this is expected to be the last major consolidation within the sector. Furthermore, the massive market share this move will give Carphone Warehouse should significantly boost its clout on regulatory decisions and the implementation of next generation networks and services.