Don't cry for Charles Dunstone...

Yesterday TalkTalk reported it's results to the City and people were not happy with what they were telling them.

The once wonder of the telecoms industry is turning into his idol Richard Branson, but not in the way he dreamed. It's only a question of time when TalkTalk is no more rather than one of if.

Dunstone has built his fortune on the spin that with him you get the best price be it Mobile phones, fixed line telephony or broadband like some spiv working the crowd in Romford Market. The problem with TalkTalk is that the customers are now not prepared to pay the actual cost of delivering fibre broadband and having seen an exodus of customers because of poor service and hacking it has had to offer contracts at below cost to keep the numbers respectable.  The perfect storm has also seen it now having to fix the holes in its finances with a cash injection almost equal to 12 months income.

Since the days of FreeServe I have said that the issue with UK Broadband investment that needed to be addressed was that the Retail Price never reflected the cost of the service or offered a Return on Investment that justified major spending. The TalkTalk partners in a project to bring superfast fibre to York have got their fingers burned from working with Dunstone to the extent that don't wish to undertake anymore work with him.  Dunstone thinks that because he has a large customer base someone else will provide the money. that might have worked 20 years ago but not today.

As others invest in the building of Superfast Broadband Dunstone will be on the sidelines shouting that its a rigged market and BT has failed to invest in Wholesale services that would allow him to stay in business. TalkTalk's strategy in terms of maintaining it's customer numbers means that he will invest in marketing and promotions at the expense of infrastructure and customer service which means that he will have difficulty in get those customers to pay more. Thus we are looking at decline to the point of bankruptcy nobody will buy them out of the hole they have dug for themselves.

BT Broadband plans, to little to late?

Woke up this morning to CEO of BT Openreach talking on Radio 4 about the plan to accelerate his Fibre to the Premises build programme so that he has a chance of hitting 3m homes and buildings by 2020. In order to work 50% faster than it is at the moment BT will be hiring 3,000 engineers.  It would seem that HR Director Kevin Brady has massive task on his hands given that candidate require very little in entry skills if this is anything to go on. 

When you look at the investment made to deliver Fibre to Milton Keynes by rival CityFibre it looks like the plans of BT are not aggressive enough and by the time they have hit the 10m target the technology they are deploying is unlikely to be capable of serving needs of 5G mobile.

Virgin Media investment plans

Over the weekend Virgin Media revealed it's latest investment plans to The Telegraph. It is seeking to expand it's network asking Liberty Global to increase it's investment to grow the footprint of it's Fibre network a £3bn plan to grow from 50% of households covered to almost 66%.   

Given that interest rates are at all time lows and Virgin have said that the investment has a good return in growing the customers base in areas where they are new entrants rather than established provider why are they not seeking to be aggressive and double the investment? The reports on broadband coverage in Britain say that the costs are not commercial for just the last 10% of households and so the capacity is there to almost double what Virgin already has. 

We could say that Liberty Global is being cautious given the uncertainty around Brexit and its economic impact or as a Global player the upside of investment outside of the UK is greater than inside.  One option would be for Virgin to become more of a player within the Business market which its brand does not speak to other than in the small business sector, some players are realising that BT is providing a very poor quality service.   

Is Virgin gaming the market to such an extent that it knows that investment is infrastructure is like betting on England's football team? It needs to stay in the game and the cost of new customers is lower in areas that it is an entrant to rather than established in that they are likely to buy a bundled service bigger than that established customers.