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TalkTalk attacked by City over cash call to pay debts as ultrafast broadband battle heats up

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TalkTalk attacked by City over cash call to pay debts as ultrafast broadband battle heats up


TalkTalk was accused of "blatant disregard" of City guidelines after it was forced to seek a £200m cash injection to pay down heavy debts.

The Investment Association (IA), which represents most of Britain's biggest investors, attacked the operator for raising the money via a share placing without the approval of existing shareholders. TalkTalk placed new shares equivalent to a fifth of its stock market value, in breach of industry guidelines that set the limit at a tenth.

A spokesman for the IA said TalkTalk had violated shareholder rights that are "a vital shareholder protection and their misuse poses a serious threat to shareholder and investors’ interests – the UK’s pensioners and savers".

"Businesses have a duty to listen to their shareholders and this placing sets a very damaging precedent for market practices."

TalkTalk carried out the placing of new equity alongside a stinging profit warning and its second dividend cut in less than a year.

The company’s shares sank to a record low on the latest in a series of downgrades but chairman Sir Charles Dunstone, who reassumed executive responsibilities last year, was defiant.

He said: “We’ve had one reset and it ended today. You talk to analysts and people who view the whole world through Excel but in nine months we’ve achieved a phenomenal amount and we’re growing. We’re now fixing the balance sheet.”


The company rejected the IA's attack, saying it had engaged with shareholders and respected their rights.

A spokesman said: "This is a recognised structure that was chosen to minimise cost as well as use of management time at an important phase of TalkTalk's growth strategy."

The broadband operator's latest financial manouevres threatened to overshadow its plans to invest in an ultrafast fibre-optic broadband network for three million homes.

TalkTalk sought new funding as it unveiled an agreement in principle with the infrastructure arm of M&G to invest together in faster and more reliable broadband networks for “mid-sized towns and cities”. TalkTalk is in line to provide £100m out of £500m total equity, with a further £1bn due to be raised from debt markets.

None of the £200m raised by TalkTalk’s placing will go towards the project. It is due to pay in installments over five years and will contribute its share of an existing ultrafast broadband network joint venture in York to cover the first £20m.

TalkTalk will instead use the new cash to repair its balance sheet, which has been tattered by years of borrowing to pay uncovered dividends. After slashing its dividend forecast to 7.5p just last May, the company said its total payout this year will in fact be just 4p. Despite the fundraising it will then “temporarily” fall further to 2.5p until TalkTalk’s debt level has come down by a third.


In a busy third quarter trading update, the operator also slashed its forecast for earnings before interest, tax, depreciation, amortisation. Having said in November it expected at least £270m at the end of the year, TalkTalk warned investors the figure will be no more than £245m and as low as £230m.


Chief executive Tristia Harrison said the profit warning was a result of faster-than-expected subscriber growth increasing costs. The operator’s new simpler and cheaper broadband pricing attracted 37,000 new retail and wholesale customers in the quarter. TalkTalk is regaining market share after years of losing ground to bigger rivals BT and Sky.

The costs claim drew scepticism in the City, however, where TalkTalk’s financial reports have long been viewed with suspicion. The company has gone through four finance directors in four years and endured a steep share price decline since 2015 after it became clear it would not hit stretching growth targets or attract a takeover bid.

Sir Charles, TalkTalk’s founder and biggest shareholder, said he would contribute nearly £40m of the new cash as a vote of confidence in the company’s future. The Carphone Warehouse billionaire’s investment, however, will mean his 30pc stake is reduced. Sir Charles rejected any suggestion he had not paid his fair share to strengthen TalkTalk’s finances.

He said: “How much money do you think I’ve got in my current account? This is insanity. I’m going to write an absolutely massive cheque today because I really believe in what we’re doing and the future of the company.


“When I have spoken to our shareholders they think that is absolutely fantastic and [it] has given them confidence to come in alongside.”

TalkTalk did not reveal which towns and cities it intends to target with new networks or when work will begin. In contrast to other infrastructure investors it said it will continue to campaign for lower wholesale costs from BT’s Openreach subsidiary for current “superfast” technology, which uses slower and less reliable copper telephones.

Virgin Media and CityFibre, TalkTalk’s partner in York, argue cheaper superfast broadband undermines the business case for new networks. TalkTalk argues it needs lower prices to maintain a large subscriber base so it can invest in new networks. Ofcom is due to make a decision this month.

Various firms are focusing on creating more reliable, ultrafast fibre-optic broadband lines Credit:  Universal News And Sport (Europe)

Sir Charles said he had opted to invest in ultrafast broadband without CityFibre, which is also targeting mid-sized towns and cities in partnership with Vodafone.

He said: “To be in this business you can bring two things. You either need to bring a big customer base or money, proper money, I would say.”

TalkTalk’s plans increase pressure on Openreach, which despite being the owner of by far Britain’s biggest broadband network, has secured investment from BT to upgrade only three million lines. BT is demanding tax cuts and regulatory changes to go further.


However, Openreach faces a rising threat of rival infrastructure if it cannot secure more capital. It also needs to attract TalkTalk, Sky and others to retail broadband on its new infrastructure and they are holding out for keener wholesale pricing.

Matt Hancock, the Culture Secretary, said: “This investment will make significant strides in giving Britain the connectivity we need to be fit for the future.

“It's fantastic to see TalkTalk stepping up to the plate – we want a healthy, vibrant, competitive next generation broadband market and are working hard to deliver the investment and good jobs that comes with it."

As well as TalkTalk, CityFibre, Virgin Media, Hyperoptic and Gigaclear, which is also backed by M&G, are all planning millions of new ultrafast broadband lines.

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It is interesting that the substance of the story is rather more positive than the typically sensational headline might lead you to believe. I am pleased to see that TalkTalk seem determined not to be crushed by the dead hand of Openreach and are looking at alternative routes to delivering true fibre broadband which the UK is so sorely lacking.