BT rescues rival TalkTalk from administration

By Paul Sandle and Sam Tabahriti

LONDON, Oct 5 (Reuters) - Britain's BT Group acquired troubled rival TalkTalk for £400 million ($530 million) on Monday, rescuing the broadband operator and protecting 2.5 million customers from potentially losing their services.

The government intervened to accelerate regulatory approval of the deal after concerns that a TalkTalk collapse could put consumers, businesses and key public services at risk.

TalkTalk, which was loss-making and had debts of around £1.5 billion, had been seeking a buyer but an extensive sales process had failed.

TalkTalk had been put into administration on Monday by Alvarez & Marsal and immediately sold to BT, which the adminstrators said would safeguard about 900 jobs.

RISK TO PUBLIC SERVICES

BT Chief Executive Allison Kirkby said the deal was the only viable option to keep millions of customers connected.

"We recognise the risk to the country and key public services should the company have collapsed," she told reporters. "So BT stepped up, and we stepped in."

TalkTalk is one of BT's biggest wholesale customers, using its Openreach network to supply customers. It also competes with BT's consumer brands BT, EE and Plusnet.

Shares in BT, which reconfirmed its financial outlook, were up 1.2% in afternoon trade.

Under normal circumstances, the deal would have faced close scrutiny from regulators and could potentially have been blocked on competition grounds.

But Culture Minister Lisa Nandy issued an intervention notice on Monday that will allow her to consider the wider public interest as well as the impact on competition.

"If TalkTalk services fail, there is a genuine risk to life and public services – including to hospitals, schools and emergency care," she said.

Nandy instructed the Competition and Markets Authority (CMA) to report on competition by October 19, after which she will consider the public interest, including public health and continuity of broadband supply.

Telecoms regulator Ofcom said: "After a prolonged period of uncertainty around TalkTalk Group's future, we welcome the prospect of a commercial solution that protects customers and secures continuity of critical communications services."

The government has been monitoring TalkTalk, but Kirkby said it was BT's decision to step in after it became aware there were no alternatives on the table.

Competitor Virgin Media, the operator of Britain's second-biggest network, criticised the deal, saying in a statement that it had "all the characteristics of a stitch-up masked as a rescue deal in the public interest".

It came just days after the CMA proposed blocking Nexfibre, partly owned by Virgin Media's owners, from buying fibre network Netomnia on competition grounds, it noted.

"We don't believe rules should be thrown out the window to allow TalkTalk to fall into BT's lap without a proper process and we will be raising our concerns directly with government and regulators," a Virgin Media spokesperson said.

The government, in its statement, said the deal came amid "exceptional circumstances" given the risks to public services if TalkTalk fails. The BT deal was reached "after an extensive open commercial bidding process," in which a number of potential buyers were unable to reach an agreement on the sale for the whole of the business, the government said.

FAST-CHANGING MARKET

TalkTalk was launched in 2003 by retailer Carphone Warehouse, before it was separately listed in 2010, by which time it had more than 4 million customers. In 2015, its reputation was damaged by a major cyber attack.

Toscafund Asset Management bought it in 2021 for £1.1 billion, backed by Carphone founder Charles Dunstone.

US investment firm Ares Management later became a large investor. It said it "supported" the BT deal.

Telecoms analyst Kester Mann at FDM CCS Insight said the BT deal "cements a painful decline for one of the UK's most established and well-known broadband providers".

He said TalkTalk had failed to respond to a fast-changing market, became burdened with debt following the buyout and had regularly suffered from poor perceptions of its service.

"Its demise should serve as a stark warning to any value-focused telecom provider," he said.

Kirkby appointed former Openreach boss Clive Selley to run TalkTalk.

($1 = 0.7563 pounds)

(Reporting by Neeshita Beura and Yamini Kalia in Bengaluru and Paul Sandle and Sam Tabahriti in London; Editing by Nivedita Bhattacharjee and Susan Fenton)