Dido Harding
Dido Harding
Max Alexander
Clive Dorsman
Amy Stirling
Q1 performance
Our strategy for TV
TV proposition
Network advantage
Financial guidance
4
Dido Harding Summary
Tristia Harrison Creating value through Triple Play
10% growth year-on-year in fully unbundled customers
Strong take-up of Plus, +66,000 in Q1, 30% of On-net base
Positive net adds in June; -19,000 in Q1 overall
Continued improvement in On-net churn 1.6% (Q4 FY12 1.7%)
9% growth in On-net revenue; 5% growth in On-net ARPU
Corporate revenue up 4% year on year to £80m
5
13.3
10.6
8.3 8.1
3.8 3.4
H1 11 H2 11 H1 12 H2 12 Q4 12 Q1 13
Call volumes
13,400 14,400
7,900 7,600
3,708 2,671
H1 11 H2 11 H1 12 H2 12 Q4 12 Q1 13
Complaints to Ofcom
1.7% 1.6%
Q4 12 Q1 13
Continued improvement in On-net churn
Churn will to continue to reduce:
• Better customer experience
• Triple Play
• Will report On-net churn quarterly
6
Low cost
operating model
Network
Advantage Quad-Play
B2B
services
Fibre
future
Expand Margin Grow Revenue
Lower costs
better experience
Expand by
up to 100x
Lower Churn
Higher APRU
Growing revenue
value creating
products
Future proof
service delivery
8
9
Unlimited Broadband and Phone
Unlimited download allowance
Free wireless router
Homesafe + Super safe boost
Unlimited calls to UK landlines
Extraordinary TV
7 day catch up
All your favourite Freeview channels
Huge library of films and shows
Live Sky Sports + Movies - add a month at a time
Source: TalkTalk management data, TalkTalk Omnibus (Pay TV ARPU data), OC&C analysis
10
7.0m Pay TV
Lovers
6.5m Mismatched
3.5m Rejectors
1.5m Dis-
interested
5.0m Pay TV
Wannabees
2.5m Price-
Aware
12
Q1 Q2 Q3 Beyond
Simplified
service footprint
Last 12 months
Detailed
process mapping
Developed box
Experienced field
engineering team
Enabled network
Trialing processes
Testing and
de-bugging box
Developing training
Building website
In home trials
Dedicated TV
service team
Pre-registration for Plus
customers only
All customers require
engineers visit
Training of all agents
before selling starts
Start booking install
dates in 6-8 weeks time
Above the line
advertising from
YouView and TalkTalk
Gradual build up
of sales
Self install option
Proposition for
Essentials
Ongoing product
development
BBC, ITV, Channel 4 and Channel 5 content builds confidence in YouView
- a substantial upgrade from Freeview
Comprehensive, flexible pay content gets people started on pay journey
Compelling wholesale agreements with multiple content partners
- Sky, Amazon, UKTV and many others
Network and billing platform provide easy access to customers for
content owners
A market place for content NOT a content rights owner
13
Sky Virgin Media BT Vision
Freeview,
YouView,
LoveFilm,
Unlimited calls & BB
Sky Entertainment, Sky
Broadband Everyday Lite &
Sky Talk Freetime
30Mb, TV M+,
Talk Weekends,
VHD box
TV Essential + Broadband
and Evening & Weekend
Calls
Inclusive content Freeview, BBC iPlayer, ITV
Player, 4oD, Demand 5
Freesat, Entertainment
Pack (40 channels)
M+ (75 channels,
6 HD channels),
BBC iPlayer, ITV Player,
4oD, Demand 5
Freeview, BBC iPlayer,
ITV Player, 4oD,
Demand 5
Additional functionality Backwards EPG,
Unified search
Anytime+ (VoD)
Sky Go (multiscreen) Anytime+ -
Inclusive TV Hardware YouView PVR Sky+ (PVR) VHD Box Vision+ (PVR)
Downloads Unlimited downloads 2GB Unlimited 10GB
Inclusive calls Anytime Evenings & Weekends Weekend only Evenings & Weekends
Plus
Entry level Triple Play today
16
17
Sky Virgin Media BT Vision
Freeview,
YouView,
LoveFilm,
Unlimited calls & BB
Sky Entertainment, Sky
Broadband Everyday
Lite & Sky Talk Freetime
30Mb, TV M+,
Talk Weekends,
VHD box
TV Essential +
Broadband and Evening
& Weekend Calls
Triple Play price £14.50 £21.50 £20.00 £17.00
Full / Value line rental £9.50 £9.95 £13.90 £10.75
Monthly cost (incl LR )
£24.00 £31.45 £33.90 £27.75
Up front cost £50.00 £2.18 - £46.95
18 months £482.00 £568.28 £610.20 £546.45
Plus
19
TV Starter
Boost Kids Boost
Music
Boost
Sky 1
Sky 2
Sky Living
Sky LivingIT
Sky Arts 1
Sky Arts 2
Sky Sports
News
Nickelodeon,
Nick Jnr,
Nick Toons
Cartoon
Network
Disney
Channel
Disney Jnr
Disney XD
Boomerang
Scamp (OD)
The Box
Channels
(x6)
Music OD
MTV Hits
MTV Base
MTV Classic
MTV Music
MTV Rocks
MTV Dance
Entertainment Boost
Sky 1
Sky 2
Sky Living
Sky LivingIT
Sky Arts 1
Sky Arts 2
Sky Sports
News
G.O.L.D
Watch
Alibi
Home
Eden
Blighty
Good Food
Sy-Fy
Universal
FX
E!
Comedy
Central
Comedy
Central Extra
MTV
Discovery
Channel
Nat Geo
Discovery RT
Discovery H &
H
Animal Planet
TCM
Entertainment Extra Boost
Sky 1
Sky 2
Sky Living
Sky LivingIT
Sky Arts 1
Sky Arts 2
Sky Sports News
G.O.L.D
Watch
Alibi
Home
Eden
Blighty
Good Food
The Box x 6
Music OD
MTV Hits
The Box
Channels (x6)
Music OD
MTV Hits
MTV Base
MTV Classic
MTV Music
MTV Rocks
MTV Dance
Sy-Fy
Universal
FX
E!
Comedy Central
Comedy Central
Extra
MTV
Discovery
Channel
Nat Geo
Discovery Real
Time
Discovery H & H
Animal Planet
TCM
Nickleodeon
Nick Jr
Nick Toons
Cartoon Network
Disney Channel
Disney Jnr
Disney XD
Boomerang
Scamp OD
YouView scored a 81/100 on the System Usability
Scale with trialists (an average score is 68)
User Interface effective and easy to understand -
90%+ good / very good
Set up very straightforward - 84% installed first
time with no calls / 92% 2nd time with no calls
Note: 3,000 trialists
21
We are currently driving reductions in On-net churn through customer
service improvements
We expect Triple Play take-up to drive further meaningful improvements
in churn
Benchmark Triple Play churn ranges from 0.7% to 1.2% per month
› Longer contract length
› Compelling proposition
› Stickiness of bundle
24
Compelling proposition will drive demand at lower cost
5m homes in the UK currently have no broadband connection
› IPTV will stimulate broadband take-up for access to affordable pay TV
› YouView is expected to drive broadband take-up by 0.5m - 1.0m
› Our unbundled footprint (93% of UK) and compelling value proposition
will allow us to take a disproportionate share of this market
25
Improving Plus mix drives ARPU from launch
Assuming minimal contribution from Pay TV on launch
Our proposition allows customers to explore paid for content
Any take-up of Pay content will be incremental for us
No back-book to defend
Over time TV scale will provide content leverage
26
All customers benefit from lower churn - extends customer life
Essentials to Plus increases monthly contribution by £3 per month
Minimal pay margin assumed in contract payback - value upside
Every Triple Play customer is more valuable than a Dual Play customer
27
Incremental value Contract
length
Incremental
investment
New Triple Play acquisition £140 18 Yes
Essentials to Plus £140 18 Yes
Plus to Plus TV £140 24 Yes
Pay back
in contract
Note: Estimated
28
750k
3m
2.25m
Plus customers today >3meg
Other customers > 3meg Technically ableto take TV
New customers
There is a scale
opportunity for
Triple Play
New to Broadband
Switchers
75% of current base
30
Collector
Node
Copper
Fibre
Exchange Backhaul
1Gbps optical circuit
supplied by BTOR
or VM
Unbundled Exchange
MSAN & DSLAM
Collector Node to
extend reach
of Core Network
Collector Ring
10Gbps optical circuit or
dark fibre supplied by BTW,
SSE, GEO, VM
and Eirecom
Core Optical Network
2 separate national DWDW
networks with 8Tbps (Huawei) and
1,6Tbps (Infinera) capacity
• 93% of the population
covered provides for
efficient provision
• Dark Fibre in our collector
rings – providing for
unlimited capacity going
forward
• CDN - Delivering content
closer to the edge
(Google, YouTube etc.)
• Traffic prioritisation
(Business, TV, etc.)
• Content Delivery Network
• Allows for flexibility and
rapid growth
• Depth in service portfolio
(Business & Consumer)
• For Consumer;
Broadband, Phone, TV,
Mobile
• For Business; Business
Grade Broadband,
Ethernet, Voice, Managed
Services, ISDN
• Homesafe
31
Served through cache
0
50
100
150
200
250
300
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Google Bandwidth required
Peer to Peer Bandwidth
Content Delivery at the Edge
(Content Delivery Network)
Content from our CDN gets delivered
to the customer faster
We save bandwidth and cost due to our
intelligent use of this technology
Gb/s
* Google traffic only
33
Over the next 5-10 years, we will
increase our capacity by between
50-100 times within 6% capex ratio
Delivering technology for the future:
solid foundation of Huawei (3.2Tbs)
& Infinera (1.6Tbs).
Trialing next generation of
Transmission (8Tbs with 100gbs
per lambda)
Investing in new Technologies
(Industry's First Programmable 2T
WDM Prototype (Huawei), SDH
replacements, Juniper next gen:
MX 20/20’s, IMS etc.)
0
5,000
10,000
15,000
20,000
25,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: Farncombe analysis,
TalkTalk forecasts
Busy Hour Total traffic
(Gbps)
x30
x44
Note: All traffic types are assumed at Access level. Other & Business
traffic for 2015, 2016 are extrapolated based on TalkTalk’s forecasts
x17
x100
34
Dividend growth minimum 15% - confidence in growth and cash generation
Revenue
Operating Expenses
EBITDA margin
Exceptionals
Capex 6% sales
Minimal cash
20 – 21 %
Broadly flat
Return to growth Growth H2 weighted
Network investment
H1 weighted
H2 weighted
Outflow in H1
Inflow in H2
Investment
H2 weighted
H1 / H2 phasing
36
Guidance excludes investment in TV (variable SAC & marketing)
Trial and project costs
Promotional content
Scaling engineers
Above the line marketing
Set top box
Peripherals
Engineer visit
37
• Incremental ARPU
- Increased Plus mix
- Engineer install fees
- Content revenue building
• Reducing churn
- Longer contract
- Lower out of contract churn
• Driving gross adds
• Gross margin
- Flow through of revenue benefit
• Opex
- Online service model
• SAC
- Incremental cost of TV
- Lower cost to acquire (demand led)
- Hardware cost efficiency with scale
- Self install
38
The best value Triple Play proposition in the market
› Free box, no additional subscription, rich content
Compelling economics
› In-contract payback Incremental contribution
› Significantly lower churn thereafter Lower SAC costs
Longer term growth driver
› ARPU
› Broadband market share
Firmly underpins our medium term targets of 2% CAGR revenue
& 25% EBITDA margin
40
43
FY12 Q1 Q2 Q3 Q4 FY13 Q1 Y-o-Y %
On-Net Customers
Broadband & Voice 2.827 2.910 2.966 3.066 3.096 10%
Plus 0.667 0.764 0.883 1.026 1.092 64%
MVNO 0.027 0.038 0.045 0.061 0.085 3x
Homesafe 0.054 0.149 0.228 0.320 0.440 9x
Fibre 0.001 0.003 0.005 0.008 0.015 15x
TV - - - - -
Broadband only 0.815 0.758 0.712 0.689 0.669 -18%
Fully unbundled % 68% 70% 73% 75% 77% 13%
Unbundled% 87% 89% 90% 92% 93% 7%
Off-net Customers
Broadband 0.530 0.461 0.401 0.311 0.282 -47%
Voice 0.621 0.573 0.525 0.476 0.436 -30%
Total Broadband 4.172 4.129 4.079 4.066 4.047
Revenue
On-net 261 263 276 284 285 9%
Off-net 85 77 67 58 49 -42%
Corporate 77 81 79 79 80 4%
Total 423 421 422 421 414 -2%
ARPU
On-net 24.00 23.99 25.05 25.47 25.27 5%
Off-net 23.41 23.49 22.79 22.57 21.71 -7%
Exchanges
Unbundled in quarter 30 171 130 170 83
Total unbundled 2,037 2,208 2,338 2,508 2,591