TalkTalk Speak of Falling Profits in 2017-18

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TalkTalk are in the midst of a rebuilding job following years of falling subscriber numbers and a series of damaging leaks which put consumer data at risk. The plan, spearheaded by Sir Charles Dunstone, is designed to restore TalkTalk’s reputation as a consumer-first challenger in the UK’s broadband market.

His strategy was unveiled as the telecoms group cut its dividend and warned that earnings wouldn’t be as healthy as they were in in 2016-17, thanks to the added investment required after the 2015 hack which revealed customer data and forced the company to accept the cancellation of thousands of contracts, as well as providing compensation to customers.

Upon the news being release, shares at TalkTalk fell a staggering 17%, before rebounding to end the day at -9%.

So, what does this new strategy involve? Well, as you might imagine it calls for a move back to what TalkTalk has traditionally done best – act as a budget competitor to the big and unwieldy telecoms companies.

Today, the likes of Virgin, BT and Sky are all positioning themselves as “quad-play” suppliers, who offer TV, broadband, mobile and home phone. Sir Charles believes that the rise of Netflix-like streaming services has meant that not every customer is going to want a tacked on TV package, and would only need a broadband subscription.

Sir Charles said that TalkTalk began employing this strategy in the fourth quarter of 2016, a quarter in which TalkTalk reported a 22,000 increase in customers, against the run of play in the broadband market.

Charles is making his comeback to the business after a multi-year absence from regular operations. Having originally build the business within Carphone Warehouse and launching it with free broadband, he’s now taking on a more hands-on role after seeing his child stumble and the value of his shares in the company tumble.

He said TalkTalk have to return to their “challenger” reputation if they want to compete going forward, highlighting the extremely aggressive approach of T-Mobile in the United States as an inspiration. That business regularly call out other companies in the sector for shoddy practice and have rebuilt their reputation on bullish pricing and a cocky new stance.

Revenue at TalkTalk fell 3% to £1.78bn in the year to March 31st, whilst pre-tax earnings rose 17 per cent to £304m. That profit fell well short of the company’s target of £320m-£360m, and it warned earnings would decline to within a range of £270m-£300m this year as they invested in customer growth.

TalkTalk had almost 4.2 million customers before the cyber-attack in 2015, but they shed 230,000 customers as countless used the TalkTalk care number to cancel their contracts and many more declined to renew.

Sir Charles said: “My focus for the company is growth, cash generation and profit ­in that order. We will be smart about how we invest, focusing on our fixed network, avoiding other capital-intensive distractions.”

One such “capital intensive” distraction was their plan to build their own radio spectrum to offer mobile services, but Sir Charles has said that the group didn’t have the “bandwidth or resources” to compete with the likes of BT-EE. However, he did reiterate TalkTalk’s commitment to their ultra-fast broadband initiative and their TV service.

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