TalkTalk signs MVNO deal with Telefónica UK in quad-play push

TalkTalk has signed a mobile virtual network operator (MVNO) agreement with Telefónica as part of an overall strategy that will see the UK fixed operator expand its "quad-play" offering that combines fixed broadband and TV services with mobile plans and, ultimately, build a small cell network to support its mobile play.

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Dido Harding, TalkTalk CEO

In an analyst call on Monday morning, TalkTalk CEO Dido Harding confirmed that Telefónica, which sells its services under the O2 brand in the UK, replaces Vodafone as the operator's mobile network partner.

"Telefónica offered us the best deal; it was as simple as that," said Harding, who added that TalkTalk had held discussions with all of the UK mobile network operators. "We are extremely excited about this new commercial arrangement with Telefónica…this is just the beginning of a deepening commercial relationship."

Harding added that the new arrangement would not change TalkTalk's guidance of 4 per cent revenue growth and a 25 per cent EBITDA margin by 2017.

TalkTalk initially plans to use the new relationship to encourage more of its existing fixed-line subscribers to buy its mobile plans: Harding said just under 10 per cent of its around 4 million customers currently also subscribe to its mobile services, and the company expects that percentage to increase.

Harding commented that the deal with Telefónica would allow TalkTalk to accelerate its quad-play capability by moving from being a light MVNO to a full MVNO. "It will enable us to buy data in scale, have more control of how the network works and how it links to our fixed-line network," she said.

"We do believe that quad play is emerging now," added Harding.

Indeed, TalkTalk recently launched what it describes as the "UK's first truly integrated quad-play proposition" with a mobile SIM included in its Plus TV package for no additional cost.

Quad-play or converged offerings of fixed and mobile services are certainly on the rise in UK: only last week Vodafone UK revealed plans to step up its own multi-play proposition by launching fixed broadband services in the first half of 2015, using a mix of its own fibre broadband network and wholesale lines supplied by BT. EE also recently unveiled a new home TV service, and BT is in the process of launching a consumer mobile service together with mobile network partner EE.

Like BT, TalkTalk intends to build a small cell network in the UK to strengthen its mobile play, although Harding said the company did not expect to build this network for another couple of years. The company also holds what Harding described as a "sliver" of spectrum in the 1800 MHz band.

"We don't expect to subsidise expensive 4G handsets or be first to launch this kind of small cell 4G network," said Harding, who emphasised that TalkTalk intends to retain its unique selling point as a value-for-money provider. "We are never first," she said.

Plans by BT and TalkTalk to build a small cell network is a strategy that some analysts are calling the "inside out" approach to mobile services in order to take on the larger mobile players, rather than launching a more traditional mobile virtual network operator (MVNO).

Rupert Wood from Analysys Mason said this model makes greater use of indoor femtocells and Wi-Fi access points, playing on the idea that a large proportion of calls originate and terminate in the home. The mobile operator network from companies such as EE or Telefónica would then be used for services outside the home or Wi-Fi access point.

"The approach offers real savings over classic MVNO models, and as such we believe it could be successful, profitable, and disruptive to legacy mobile operators," Wood noted in a research report from earlier this year.

For more:
- see this TalkTalk release

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