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BT’s OpenReach threatens to block TalkTalk from registering new customers with its broadband network.
The warning issued this week is the latest step in an escalating financial dispute between TalkTalk and the UK’s largest broadband network.
The much-benefitted telecom provider has missed several monthly payment deadlines to its biggest supplier, OpenReach, due to cash flow issues, Financial Times reported this week.
Those familiar with the issue say that payment extensions vary in size, but are equivalent to a “small percentage” of the total amount, estimated to be around £60 million per month. The person added that the unpaid invoice is now being paid.
TalkTalk, which currently hosts around 3 million customers on OpenReach’s network, has dropped out of 400,000 customers from February to February.
Last year, shareholders, including Ir Charles Dunstone, injected £255 million to help support TalkTalk’s finances and pay off other debts to OpenReach.
The refinance was caused by blocking new customers by a similar threat from OpenReach last year. TalkTalk and OpenReach declined to comment.
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James Ratzer, analyst at New Street Research, said OpenReach’s move to block new TalkTalk customers is “unprecedented in the UK market” and will “material damage” to turn TalkTalk’s business around.
TalkTalk has added £527 million in debt to its balance sheet since London-based hedge fund Toscafund bought it in 2021 at a leveraged buyout.
The Salford-based company has secured an expansion to approximately £1.2 billion in its existing debt as part of its refinance in December. As part of that agreement, bondholders will be able to control the group as long as they can use at least £20 million in cash at the end of the quarter.
New Street Research estimated that TalkTalk would have £42 million in cash available at the end of February. TalkTalk shareholders can inject more capital into the business if necessary, according to those familiar with the issue.
In a call with an analyst last month, TalkTalk showed that another 300,000 customers could suffer net losses this year. However, the forecast was based on a company that attracted 100,000 new customers. An out-of-reach goal should be that open reach refuse to host new businesses.
TalkTalk’s £562 million senior secured bond was trading at 46p in pound on Friday. The junior bond is trading in the pound for just 11p, indicating that investors doubt the company is able to pay off its debts.
The financial dispute between OpenReach and TalkTalk has also raised concerns about the impact of knock-ons on OpenReach’s owner, BT Group.
BT CEO Alison Kirkby confirmed to analysts last month that “one challenged communications provider” had “caused a headwind” for BT.
