Broadband ‘supplier of last resort’ talks amid debt pressure at TalkTalk and alt-nets

Regulators are drawing up plans for a broadband “supplier of last resort” regime in the event higher interest rates spark a wave of collapses and disruption.

Ofcom has been planning to ensure there is no disruption to broadband services as scores of providers reel from higher borrowing costs.

The financial pressures at TalkTalk, Britain’s fourth-biggest provider, are fuelling concern across the industry, although the regulator said its plans are not specific to any individual company.

The regulator has been in talks with BT’s Openreach division for more than a year amid fears that expected bankruptcies among small broadband network owners, known as alt-nets, could leave households facing uncertainty over their internet connection.

BT chief executive Philip Jansen this week warned it was a “hugely challenging” environment for many broadband providers amid surging inflation.

Speaking to analysts, he said: “Clearly there are going to be some changed in the industry over the next few years.”

Mr Jansen added: “If there are a few hundreds of thousands of customers, they need to be moved at some stage. We can do that, and we can do more as well. So look, we’re ready and waiting if ever required.”

Talks between BT and Ofcom are also understood to cover a possible failure of major retailers including TalkTalk, which is in the process of breaking up and selling off part of its business to raise cash under pressure from a £1.1bn debt pile.

TalkTalk has around four million customers, including 2.4 million in its consumer direct division. The provider does not operate its own network, but rather sells access to networks run by Openreach and CityFibre.

Any decision to select BT as the supplier of last resort would likely raise competition concerns due to the former monopoly’s dominant position in the market.

The Ofcom discussions are understood to focus on issues such as customer service to ensure users could still access information about their broadband.

Other players, such as Virgin Media O2, are also thought to be monitoring the situation. BT and Openreach declined to comment.

An Ofcom spokesman said: “We keep a close eye on the broadband market to make sure we know what’s happening on the ground, as part of our work to protect customers. While we carry out contingency planning in this market, we don’t hold plans for specific companies.

“Usually, when a company fails, it’s sold as a going concern and customers don’t experience a loss of service.

“In the unlikely event that an internet service provider suddenly failed, we would work with their underlying network providers to try and make sure customers continued to have a connection, as well as information about their service.”

TalkTalk was founded by Sir Charles Dunstone and taken private by Toscafund in 2020.

The recent surge in interest rates means the company is facing a sharp rise in borrowing costs when it refinances early next year. Its bonds are trading at levels which indicate market doubts over whether the debt will be repaid.

TalkTalk last month agreed to sell its business division to its own shareholders for £95m after failing to find a third-party buyer.

The Telegraph has learned that the company has now sent out an information memorandum as it seeks to sell a stake in its wholesale operations.

Infrastructure funds including Global Infrastructure Partners, Antin, Vauban and DigitalBridge are among potential buyers to have been sounded out.

It is unclear what size a stake TalkTalk is seeking to sell, or at what valuation.

However, analysts have previously raised concerns about the value of the wholesale division, saying it was largely dependent on the sustainability of the group’s retail franchise.

TalkTalk may also look to sell a stake in its consumer division or sell it off completely.

Bosses are hoping the break-up will help to raise cash and allow the company to refinance the different divisions separately. The provider has also cut its sales and marketing spend by 40pc.

TalkTalk boss Tristia Harrison will lead a new transition board overseeing the break-up before stepping down from the top job early next year.

The company was contacted for comment.