SOMETIMES the sum of the parts is worth more than the whole. The demerger of Carphone Warehouse and TalkTalk is the logical step for a company whose level of growth and evolution had started to trip itself up.
TalkTalk fared well in trading today. The UK’s number one residential broadband provider, supplying over 4m homes, has a massive reach and obvious revenue potential. Ebitda last year was up from £271m to £298m. The demerger comes days after Ofcom announced plans to encourage expansion of broadband infrastructure and roll out superfast internet to rural areas, meaning growth is on the cards. The issus has taken on political significance in the run-up to the election.
However, TalkTalk took a hit from the decision by Ofcom not to force BT to allow unbundled access to its fibre connections, which would have allowed it to offer superfast broadband without vast infrastructure costs. For now it will have to rely on its existing copper connections or wholesaling BT’s bundled fibre packages at very narrow margins. In the back of the mind should be its likely sale within three years, which could provide handsome rewards.
Carphone Warehouse is a different matter. It is embarking on a massive expansion in Europe with its US partner Best Buy, including importing American-style warehouse or “Big Box” retailers. In the short term it will take a hit, and in the longer term it risks being sidelined by the increasingly competitive online market. It also faces rejuvenated competition from rivals Kesa and DSGI.