Broadband Update

BT is buying TalkTalk as a buyer of last resort, given the chaos that would ensue with a disorderly shut down, and will face a regulatory clearance process that reflects this.

The acquisition will cost BT c.£400 million this financial year, and will be hard to
manage given the ongoing subscriber decline, with limited longer-term upside.
Damage limitation appears to be the main driver.

There is a limited impact on the rest of the market, with some opportunity to pick up
business, limited risk for CityFibre despite it supplying TalkTalk, but less choice for
some types of smaller broadband competitors.

With Paramount Skydance's acquisition of Warner Bros. Discovery (WBD) closing today, attention will turn to the financial future of the combined entity

Its financial future comes down to three things: how much cash the business generates, what prior claims exist on that cash, and whether what remains can pay debt down faster than linear TV shrinks 

The bull case rests on linear decline attenuating, as $6bn of synergies and greater streaming scale lift earnings; otherwise cash generation alone is unlikely to deliver the headline deleveraging targets

The CMA has provisionally blocked the VMO2/nexfibre-Netomnia transaction, primarily because of the network overlap, and it is hard to see a path to approval from here.

CityFibre is back in the driving seat to consolidate the altnets, with the pressure now on the retail altnets to secure deals earlier rather than later.

There are substantial silver linings for VMO2/nexfibre in the deal being refused, it is positive for Sky/VodafoneThree/TalkTalk in our view, and more neutral for BT/Openreach given the pluses and minuses.