Tech

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

There's a rich mythology in Silicon Valley around founders who return to save their companies, as with Steve Jobs at Apple Inc.

But the gambit can fail if companies and their boards stick to flawed strategies, support poor managers and make unrealistic promises. Jack Dorsey's disappointing run at Twitter Inc. and Mark Pincus at gaming company Zynga Inc. are examples.

British budget broadband provider TalkTalk Telecom Group Plc risks joining the latter group. Its founder and biggest shareholder Charles Dunstone returned to a more active role as executive chairman in February as the company reeled from customer losses, falling revenue and a market value less than half its 2015 peak. 

Ouch
TalkTalk shares have lagged both the U.K. and telecoms indices
Source: Bloomberg

On Wednesday, as he unveiled weak annual results and halved the dividend, Dunstone set out a plan to fix TalkTalk by going back to basics as the cheapest option for cost-conscious Brits. Unfortunately, the strategy looks like more of the same.

Even if Dunstone succeeds, TalkTalk -- which re-sells broadband and mobile capacity rented from rivals -- will fall short of the profitability enjoyed by similar European peers, such as France's Iliad SA and Germany's United Internet AG. That's in part because of more favorable regulatory regimes on the continent, but mostly because those companies are better run.

Stop Talking
TalkTalk's Ebitda margins trail peers in other countries with similar business models
Source: Bloomberg, company reports
2017 figures are actual ones for TalkTalk and forecast others

TalkTalk's new plan is to get sales growing again with simpler tariffs (although these were introduced in November) and more aggressive marketing. This did bring in more broadband customers in the first three calendar months of 2017. Another change is scaling back its mobile ambitions, a misadventure that Dunstone implicitly blamed on outgoing CEO Dido Harding. 

The extra cost of chasing customers means Ebitda is expected to be 270-300 million pounds for the financial year to March 2018, rather than previous analyst estimates of 341 million pounds. The shares fell as much as 17 percent at one point.

Indeed, the new approach doesn't really change the two main problems. First, being a re-seller of other companies' capacity means TalkTalk's margins are naturally limited. Second, it is sub-scale in a market that's become more competitive. First, Sky Plc essentially gave away broadband to keep pay-TV customers happy. Then fixed-line leader BT Group Plc expanded in mobile, forcing Vodafone Plc to hit back by offering cut-rate broadband. Sometimes, Vodafone is the cheapest option. This all squeezes TalkTalk. 

Still, there's plenty of room for it to improve operationally, so maybe Dunstone can help. "If TalkTalk finally executes, something it hasn't done since a debilitating hack of its customer data in 2015, then results could improve," says Erhan Gurses of Bloomberg Intelligence. "There should be room in the market for a value provider."

British consumers, as well as Dunstone's fellow investors, will hope that TalkTalk still fits that bill.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net