TalkTalk’s Demise: Four Lessons for the UK Telecoms Industry

My career as a Telecoms Equity Analyst started with the liberalisation of the European telecom markets in 1998 (the UK liberalised several years earlier). With nearly 30-years of reflection, what are the lessons we can learn from the demise of TalkTalk? Lesson one and maybe the most significant, is that a business based on a regulatory driven arbitrage model is not sustainable and is only relevant for a certain time. Fundamentally communications infrastructure requires capital investments and deep network engineering, such as fibre, DCs, 4G/5G/6G, DAS and small cells! A business model focused on creating retail price pressure at the service-level only has a finite window and TalkTalk follows Mercury/Cable & Wireless and many others into the history books. Lesson two, any capital investment needs to be discernibly invested. Capital investments where it is easy to build and repeats infrastructure, is not a good use of resources. UK cable in the 1990s and altnet fibre builders have shown this repeatedly. Lesson three, should critical UK services be allowed to contract with asset-lite business that have a competitive price focus? BT Group, Virgin Media O2 and VodafoneThree have deep infrastructures with material capex budgets and should be at the forefront of communications technology in the UK. These are the business that warrant hosting critical UK services not only for reliability, but also to create a platform for UK innovation and economic development. And finally, lesson four, there is a route to circumvent Ofcom and Competition and Markets Authority oversight which should be encouraged. Regulation and competition reviews can be too short sighted focusing on ~5-year horizons and therefore, the balance between returns and investment may not be fully reflected and understood. The fact UK wireless consolidation happened a decade later than needed is another good example where artificial barriers to change have hampered the development of the communications industry in the UK. The period where arbitrage driven telecoms business models are relevant is well passed.