UK telco TalkTalk ended 2012 on a high, returning to growth in both broadband and TV business segments following an extended dry period. The company finished Q4 2012 with 4.05 million broadband customers, adding 10,000 new subscribers in the last quarter of 2012 - the first net addition increase in three years. Moreover, TalkTalk has increased its IPTV subscriber base for the first time since Q2 2010, after facing declines in nine consecutive quarters. Improvements were also seen in its customer services, with a 48 per cent year on year decrease of customer complaints to the national regulator, Ofcom. Nevertheless, TalkTalk still remains behind Sky, which added 132,000 new broadband customers in the last quarter of 2012 and is the number three ISP with 4.2 million broadband connections (after BT and Virgin).
BT Retail added 122,000 new customers over the same period and, according to its latest results, BT's broadband network now serves 6.6 million customers in the UK. Over a million of these connections are fibre based connections (both FTTH and FTTC). BT Retail managed to increase the number of its superfast fibre (FTTC and FTTH) customers by 200,000 in the past quarter, through new subscriptions and through upselling fibre products to its existing customers.
TalkTalk also offers fibre based (FTTC) products and their popularity is increasing, judging from the 22,000 newly added customers in the last quarter (compared to 15,000 net ads in Q3 2012). While the 52,000 fibre customer base is still very modest, TalkTalk is expecting more demand for the superfast service, especially with the growing popularity of IPTV and VoD services.
At year-end 2012, TalkTalk had 80,000 IPTV subscribers, helped by the launch of YouView in Q3 2012. BT on the other hand added 21,000 IPTV subscribers for the third consecutive quarter. BT remains the dominant IPTV platform in the UK with 0.77m IPTV customers out of which 60,000 now have the YouView box installed.
It is apparent that YouView has made little impact on BT's IPTV customer base with a level of net additions no different to the previous two quarters of 2012, and lower than the rate seen in the same quarter in 2011. TalkTalk however, despite poor IPTV sales in the past, has been able to pick up its performance with the help of YouView.
One reason for the relatively poor performance seen by BT relates to the activation fee and a minimum term contract. Initially, new BT Infinity customers were offered the YouView set-top box free of charge, with a monthly subscription of £4 and an activation fee of £49. This was later offered to all new broadband customers. With net additions of only 21,000 IPTV customers and 122,000 broadband, it means approximately one fifth of those being offered a free YouView box were activating the service, assuming zero churn.
TalkTalk on the other hand offered customers a free YouView set-top box for no monthly subscription fee and a lower activation fee of £20 (albeit with a longer minimum term contract of 18 months for broadband vs. BT's 12 months for TV and 18 months for broadband). YouView is yet to reveal figures on retail performance of the box; however IHS does not expect retail sales of the device to be stellar given the high price.
TalkTalk, in contrast to BT, is relying on a lower-cost TV offer being attractive to a lower spend UK consumer demographic, with a flexible TV package structure marrying well with the company's target audience. So far, this seems to have worked for the besieged telecoms group, and such a strategy has served certain telcos in other markets (such as France's Iliad Group) well in helping them to consolidate and grow market share in a highly competitive environment.
BT is hoping that its sports channels, due for launch in summer 2013, will have a positive impact on subscriber additions to its IPTV platform. The telco, which acquired rights to show 38 English Premier League matches per season from August 2013, and has been bulking up with ancillary rights prior to the channels' debut, is anticipating that it will be able to use its scale and existing market presence to make a success of its sports play, where companies such as Setanta and ESPN have struggled. Precedent from other European markets however, which has seen telcos including KPN and France Telecom struggle to drive IPTV take-up using sports rights, suggests that BT's chances here are mixed. Sky continues to offer a competitive broadband package to its TV customers, which raises a further obstacle to BT's ambitions. However, despite this uncertainty, BT's broadband division has returned to form, as the telco surpassed Sky's broadband net additions for the first time since Q3 2011. BT and Sky collectively continue to dominate the broadband sector in the UK - IHS estimates that they took a combined share of over 95 per cent of net broadband additions in 2012.