TalkTalk is to sell its direct business customers to strategic partner Daisy for £175m as it seeks to capitalise on growth in wholesale and partner markets. The 80,000 SoHo, SME and enterprise clients represent less than 20% of TalkTalk's B2B revenues and continue to be served by the operator's network, providing ongoing revenue.
According to TalkTalk Business Commercial Director Pete Tomlinson (pictured) the divesture is a statement of certitude and intent against a backdrop of market change and enables the company to focus on growing its core strategic partner and wholesale business, offering services through 800-plus channel relationships.
"The sale speaks volumes about our channel market focus, longevity and confidence," he commented. "It is a common sense move that was endorsed by a 10% share price rise on the news breaking.
"We are crystal clear about our proposition and using our scale to support partners. All resources including personnel are now 100% focused on the partner and wholesale market."
TalkTalk Business was previously 80% channel, growing at 11% CAGR over the past two years. Key growth areas are IP connectivity, Ethernet and FTTP services with IP voice sales also on the up.
"This momentum will continue to build," said Tomlinson. "We have prioritised our partner strategy with no potential for channel conflict in the B2B market. This is a huge commitment and we are determined to be successful."
Tomlinson noted that product development is now shaped by the channel focus, with work behind the scenes already under way on new access technologies and developments around the portal and online experience.
The sale also enables Talk-Talk Business to intensify the nature of partner relationships. "Our attention is on how we partner with customers and help them to win in the market and build technical solutions," added Tomlinson.
"We're getting more involved in their business, leveraging all of our skills and resources while enabling partners to better manage the end user lifecycle using our MI data."
Tomlinson hopes that Talk-Talk Business's channel-only operation will provide a permanent foundation for partners as the market evolves and becomes more complex.
"There is some uncertainty in the channel," he added. "Major players are repositioning, there are moves to full fibre and all-IP while new technologies like SoGEA must be embraced.
"We're bringing together the patchwork quilt of underlying supply technology into a single service. Taking a complex landscape and making it far more simple, providing high quality, high speed Internet connectivity and IP services across the top at scale as the value provider. This is our DNA."
TalkTalk's Chief Executive Tristia Harrison stated: "Last year we set out a strategy to simplify the business, focusing on fewer priorities that offer the best growth potential.
"TalkTalk has strength in the partner and wholesale markets. It represents the vast majority of our revenue and profit and we see an opportunity to continue growing at pace."
The sale would negatively impact TalkTalk's FY19 EBITDA by £15m and strengthen its balance sheet, enabling investment in a new full fibre network in partnership with Infracapital. Tomlinson confirmed that the channel is the route to market for fibre alongside the consumer business.
Charles Bligh is to step down from the Board as Chief Operating Officer on 30th June when he becomes CEO of the new company set-up by Infracapital and TalkTalk for the roll out of full fibre to more than three million homes and businesses in mid-sized towns and cities. Paul Reynolds has been appointed Chairman.
Philip Carse, Principal Analyst at Megabuyte, observed: "The sale of the direct B2B business helps fund the FTTP JV. TalkTalk is adding a decent war chest while also keeping some revenues through its wholesale agreement with Daisy.
"For Daisy Group, the proposed deal is significant and well timed given the much rumoured current sale process."
The transaction is expected to complete in late July 2018.