BT has bought struggling broadband provider TalkTalk out of administration for £400 million following fears its collapse could spark a national security threat.
The telecoms giant said it had stepped in to save TalkTalk’s consumer division and its wholesale arm PlatformX Communications (PXC) in a “genuinely unprecedented situation” after TalkTalk’s attempts to find a buyer for its two businesses had failed.
The move will protect jobs for TalkTalk’s 900 workers based in Salford, Greater Manchester, and secure telecoms supply to 2.5 million households and vital public service customers, including hospitals and schools.
The takeover will give BT an even bigger grip on Britain’s broadband market, with the firm already holding a market share of about 30%, sparking concerns among rivals over its dominance.
Culture Secretary Lisa Nandy said she had taken urgent action and intervened on Monday to help pave the way for the BT takeover, invoking a Public Interest Intervention Notice so that the “impacts on public health, critical national infrastructure and supply to vulnerable customers are fully considered as part of this process”.
She has ordered a speedy investigation by the Competition and Markets Authority (CMA), with a deadline for the watchdog to report back by October 19.
TalkTalk’s customers include vulnerable households, as well as connections that support critical national infrastructure providers across health, emergency services, defence, education, transport, banking and government.
Ms Nandy, Secretary of State for Digital, Culture, Media and Sport, said: “Phone and broadband services are vital national infrastructure.
“If TalkTalk services fail, there is a genuine risk to life and public services – including to hospitals, schools and emergency care.
“These are unprecedented circumstances that require action now.”
TalkTalk’s customers do not need to take any action following this deal, the Government added.
Allison Kirkby, chief executive of BT Group, said: “This is a genuinely unprecedented situation, where millions of citizens and businesses were at risk if TalkTalk had collapsed.”
She added: “Our immediate priority is to stabilise the business and provide a safety net for the households and businesses who rely on TalkTalk.”
BT said it paid around £400 million in total for TalkTalk, including transaction costs.
It is thought BT agreed to pay around £100 million to TalkTalk’s majority shareholder and creditor Ares Management under the deal, with a further £60 million to private equity giant KKR, which acted as securitisation agent.
But creditors are said to be left owed hundreds of millions of pounds as a result of the failure of debt-laden TalkTalk due to the so-called pre-pack administration.
Shareholders, such as founder Sir Charles Dunstone, are also set to be wiped out.
Broadband provider Virgin Media raised concerns over the impact the deal could have on competition.
As well as BT’s market share dominance after the deal, Openreach – BT’s wholesale network arm – is also TalkTalk’s largest supplier.
A Virgin Media spokesperson said: “This has all the characteristics of a stitch-up masked as a rescue deal in the public interest.
“Just days after the competition regulator proposed potentially blocking a logical deal between nexfibre and Netomnia that would accelerate fibre investment and create a genuine, financially sustainable challenger to Openreach, it now appears that rules might be watered down so the incumbent can roll its tanks over competition and further tighten its grip on the market.”
They added: “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.”
Telecoms watchdog Ofcom said it would “keep a close eye” on the deal and its impact.
Dame Melanie Dawes, Ofcom’s chief executive, said: “The transaction will now be subject to the appropriate clearances and we’ll be working closely with the Government and the CMA during that process.
“We’ll keep a close eye on the transition to protect consumers and competition, and we have written to BT today to underline our expectations.”
