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BT’s Openreach has threatened to block TalkTalk from putting new customers on its broadband network in a move that could derail the struggling telecoms operator’s turnaround efforts.
The warning, issued this week, is the latest step in an escalating financial dispute between TalkTalk and the UK’s largest broadband network.
The heavily indebted telecoms provider has missed several monthly payment deadlines to Openreach, its biggest supplier, because of cash flow issues, the Financial Times reported this week.
The late payments have varied in size but amounted to a “small percentage” of the total amount due, estimated at about £60mn per month, according to a person familiar with the matter. The person added the outstanding bills had now been paid.
TalkTalk, which currently hosts about 3mn of its 3.2mn customers on Openreach’s network, shed 400,000 customers in the year to February.
Last year, shareholders including Sir Charles Dunstone injected £235mn to help shore up TalkTalk’s finances and pay off a separate debt to Openreach.
That refinancing was precipitated by a similar threat from Openreach last year to block new customers, according to three people familiar with the matter. TalkTalk and Openreach declined to comment.
James Ratzer, analyst at New Street Research, said a move by Openreach to block new TalkTalk customers would be “unprecedented in the UK market” and would do “material damage” to TalkTalk’s efforts to turn around its business.
TalkTalk has struggled since it was bought by Toscafund, a London-based hedge fund, in a £1.1bn leveraged buyout in 2021 that added £527mn of debt to its balance sheet.
The Salford-based company secured extensions to about £1.2bn of its existing debt as part of a refinancing in December. As part of that agreement, its bondholders can take control of the group unless it has at least £20mn in cash available at the end of every quarter.
New Street Research estimated TalkTalk had £42mn of cash available at the end of February. TalkTalk’s shareholders could inject further capital into the business if required, according to a person familiar with the matter.
Last month, in a call with analysts, TalkTalk indicated it may suffer a net loss of a further 300,000 customers this year. However, that forecast was predicated on the company attracting 100,000 new customers — a target that could be out of reach should Openreach refuse to host new business.
TalkTalk’s £562mn of senior secured bonds were trading at 46 pence on the pound on Friday. Its junior bonds were trading at just 11 pence in the pound, indicating that investors have doubts the company will be able to repay its debts.
The financial dispute between Openreach and TalkTalk is also raising concerns over the knock-on impact on BT Group, owner of Openreach.
BT chief executive Allison Kirkby acknowledged to analysts last month that “one challenged communications provider” had “caused headwinds” for BT.
