TalkTalk Shows Its Teeth and Snaps Up Tiscali UK

| May 11, 2009 | Consumer Broadband Services - Europe | Competitive Intelligence Report

| Analyst: Natasha Rybak

Current Perspective: Positive
Vendor Importance: High
Market Impact: High

Event Summary

May 8, 2009 –- Carphone Warehouse's consumer ISP subsidiary TalkTalk announces its intention to acquire Tiscali UK for GBP 236 million, making TalkTalk the largest consumer broadband provider to challenge BT, with a combined customer base of 4.25 million. TalkTalk expects that 80% of the merged customer base will receive services via a single unbundled network within two years. The acquisition remains subject to regulatory approval.

Analytical Summary

• Current Perspective: Positive on TalkTalk's intended acquisition of Tiscali UK, because the move propels TalkTalk to the position of leading challenger to incumbent BT in the consumer broadband space. TalkTalk gains an established customer base, many of which are existing DSL users, as well a new IPTV capability, presenting a variety of opportunities for cross-selling, new service development, bundling and customer growth. These prospects will mitigate the inevitable headache of attempting to migrate Tiscali's many non-LLU customers to unbundled services.

• Vendor Importance: High to TalkTalk, because the company needed to achieve greater size and economies of scale in order to consolidate its position in the crowded UK consumer broadband market. TalkTalk is taking advantage of Tiscali's availability to leapfrog competitors in terms of raw customer numbers, at the same time removing a smaller rival from the playing field. Withi this planned acquisition, TalkTalk is taking a step towards triple play provision, a must-have for any large UK operator looking to grow significant consumer broadband market share.

• Market Impact: High on the UK consumer broadband market, because TalkTalk now comprises a much larger, more expansive and toothier threat to rival providers. The company has already shown a willingness to act aggressively in terms of pricing and innovative product bundling, and the potential for TalkTalk to enlarge Tiscali's IPTV capability into a comprehensive triple play service will further require competitors to sharpen their focus and respond with cost-effective, transparent, relevant and customer-friendly service propositions.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

| Client access - Full report in Consumer Broadband Services - Europe | More information

Recommended Competitor Actions

• All of the UK's consumer broadband players are now facing an enlarged, enhanced and energized TalkTalk. Competitors should expect TalkTalk to play to its strengths: value for money, innovative product bundling and strong customer care backed by a well-oiled sales and distribution engine. Opportunities to poach former Tiscali customers should be focused as much as possible on those in Tiscali's non-unbundled areas, as these will be the most difficult for TalkTalk to convert and retain.

• BT, Virgin Media and BSkyB have a major edge over TalkTalk in the triple play space with their well-established and well-known bundled offers incorporating fixed telephony, broadband Internet and television within a single package. These competitors need to continue to leverage this differentiator in targeting existing Tiscali and TalkTalk customers, especially given the very real possibility that in the future TalkTalk may build and expand on its newly-acquired IPTV capability.

• Operators like Telefónica O2, Orange and Virgin Media also have an advantage over TalkTalk and Tiscali in terms of having the ability, whether direct or via MVNO agreements, to support mobile offerings in addition to fixed voice and broadband. Virgin Media already has a bundled quad play offer on the table, and the other competitors can exploit their mobile capabilities to provide service options and packages incorporating a mobile element that TalkTalk cannot match.

Recommended End User / Customer Actions

• Existing Tiscali customers should sit tight for the time being, given that TalkTalk seems to be taking pains to make a smooth integration process a priority. These customers should explore TalkTalk's other service offerings to see if any products present more amenable options than the Tiscali offerings, and can also investigate consumer Web sites focused on the comparative benefits of different UK broadband and telephony services as well as the reported quality of customer care in deciding whether to stay with TalkTalk.

• As always, when subscriptions come up for renewal customers need to compare personal requirements against price, broadband speed, availability, value added options, calling plans, contract terms, service migration costs and complexity and word-of-mouth reputability when deciding whether to remain with an existing provider or switching to another. Shortlisted operators to evaluate in the UK include BT, Virgin Media, BSkyB, Telefónica O2 and Orange, as well as TalkTalk.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

| Client access - Full report in Consumer Broadband Services - Europe | More information

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