TalkTalk Sinks on Plan to Fund Fiber Push With Share Sale

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  • New company adds competition to U.K. broadband infrastructure
  • Fiber strategy will focus on towns unlike BT’s city-based plan

TalkTalk Telecom Group Plc plunged as it announced plans to sell shares for 200 million pounds ($278 million) to prop up its balance sheet and finance the buildout of fiber to more than 3 million homes and businesses in the U.K.

The new company with Infracapital, the infrastructure investment arm of M&G Prudential, will inject further competition into the U.K. fiber broadband market, which now sees BT Group Plc’s Openreach unit compete with Virgin Media, Gigaclear Plc, and recent entrant Vodafone Group Plc’s collaboration with infrastructure startup CityFibre.

The U.K. broadband provider said in a statement Thursday it will “temporarily” cut its dividend payout to shareholders to 2.5 pence to fund its share of the fiber investment. Shares fell as much as 18 percent to 98.65 pence, their lowest price ever.

Executive Chairman Charles Dunstone said competitive pricing will be key to attracting customers over to the new service but declined to give details. “It won’t be at a significant premium but we’re not saying what the pricing will be, but it’s for everybody.”

TalkTalk is bringing in more new customers under a strategy focused on expansion that was introduced last year by Chief Executive Officer Tristia Harrison and Dunstone. TalkTalk attracted 37,000 net new customers in the quarter ended Dec. 31, an improvement from 26,000 in the second quarter and 20,000 in the first.

TalkTalk will have a 20 percent share of the 500 million pound venture, with Infracapital taking the remaining 80 percent, the carrier said, with two thirds of the 1.5 billion pound investment coming from debt.

TalkTalk will be a founding wholesale customer of the new company, committing to a minimum volume of business, it said. It will focus on roughly-60,000-person towns over the next five or six years, as opposed to Openreach’s large-city focused strategy.

“We’re going to focus on mid-sized towns and cities in the U.K. and that’s very deliberate,” Harrison said on a conference call.

(Updates with share reaction starting in first paragraph.)
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