Tiscali Broadband

Tiscali was an Italian internet company that became, for a decade, one of the bigger names in UK home broadband. It arrived in Britain through acquisition rather than organic growth, grew largely by buying other providers rather than winning customers from scratch, and left in 2009 when its parent ran out of money. The broadband service it ran was competitively priced; the customer experience it delivered was, by most measures, not. Its customers ended up at TalkTalk, a company that inherited both the subscriber base and many of the billing problems that had plagued Tiscali for years.

Where it came from: Sardinia to the UK, 1998–1999

Tiscali S.p.A. was founded in January 1998 in Cagliari, Sardinia, by an entrepreneur named Renato Soru. Its name comes from a mountain on the island, near the ruins of an ancient village. The company began as a dial-up internet provider in Italy and launched a free-access service in March 1999, meaning customers paid nothing for a subscription and only covered the cost of phone time spent online. The model had already worked in Britain with Freeserve; Tiscali applied the same idea in Italy and used its rapid growth to raise money on the stock market later that year.

Tiscali reached Britain in 1999 by acquiring a UK internet provider called LineOne, which had been a joint venture between News International and BT. Within a year the company was expanding across Europe at pace, buying up ISPs (internet service providers, the companies that connect households to the internet) in the Netherlands, Germany, France and elsewhere. The most significant of these deals was the acquisition of WorldOnline in 2000, a Dutch provider with customers across fifteen countries, bought for around 5.9 billion euros. That single deal made Tiscali one of the largest ISPs in Europe almost overnight.

Growth by acquisition: building a UK presence

In the UK, Tiscali steadily accumulated customers and infrastructure through a series of deals. The LineOne base gave it a starting point; further acquisitions and organic growth followed as broadband adoption took off in the early 2000s. By the mid-2000s the company had established a network of its own equipment installed directly into telephone exchanges (a process known as local loop unbundling, or LLU, which allows a provider to run its own connection to a customer's home rather than leasing capacity from BT). This was expensive to build but allowed more control over pricing and service quality.

The most significant UK acquisition came in 2007, when Tiscali paid around £210 million for the broadband and voice customer base of Pipex, a rival that had itself absorbed several other providers including Bulldog, Freedom2Surf and Toucan. Pipex brought Tiscali roughly one million additional customers, taking its total UK subscriber count to around 1.8 million by 2008. At that point Tiscali was the fourth-largest residential broadband provider in the country, behind BT, Virgin Media and Carphone Warehouse's TalkTalk operation.

What Tiscali charged

Tiscali positioned itself as a value provider. Its entry-level packages were consistently among the cheaper options on the market, which is a significant part of why it kept growing in a period when price comparison was becoming the primary way most people chose a broadband supplier.

In its later years, the product range covered three main types of access. A pay-as-you-go dial-up option remained available for occasional users, charged by the minute. A flat-rate dial-up plan gave unlimited access for around £15 a month. Broadband packages started at around £10 to £12 a month for a basic service with usage limits (measured in gigabytes, the unit used to quantify how much data you can download). Unlimited broadband cost closer to £20 a month. The company also offered combined packages including a landline and calls. In 2007 it introduced a single phone number for all customer enquiries, though the number charged callers 10p a minute.

Its pricing undercut many rivals, but the company was clear-eyed about the trade-off this created. Tiscali ran a relatively lean operation, and the infrastructure investment needed to keep pace with demand, particularly after the Pipex acquisition, was something it was visibly struggling to fund.

Service problems and customer complaints

Tiscali's reputation for customer service was, by the mid-2000s, seriously damaged. The complaints were consistent and well-documented. Many centred on bandwidth throttling (the practice of deliberately slowing a customer's connection during busy hours, without making this clear at the point of sale), long call-centre wait times, and the difficulty of cancelling without errors appearing on the account.

In January 2008, a botched software update to the company's network management equipment caused severe speed drops and service disruptions for a large portion of its customer base. Popular applications including online gaming and file downloading became unusable. The Register reported that customers were experiencing what amounted to dial-up speeds on supposed broadband connections. Tiscali said it had reversed the update; many customers reported the problems continued for weeks.

The Pipex acquisition made things worse. Pipex customers who had no idea their connection had been moved to Tiscali's network found themselves on a slower, more restricted service with no warning. Complaints rose sharply on consumer forums. Tiscali was, at that time, the only large provider to show a declining market share in industry surveys, a drop from around 11.6% to 11.1% between 2006 and early 2007.

Billing was a particular problem. Accounts were not always closed when customers cancelled; direct debits continued to be taken; and debt collection letters were sent to people who had already left the service months or years earlier. These problems persisted after TalkTalk acquired the business. Ofcom eventually ordered TalkTalk to pay £2.5 million in compensation to around 62,000 customers who had been incorrectly billed. In one documented case, a customer who cancelled in 2008 was still receiving demands from a debt collection agency two years later, for a total of over £350.

Financial collapse and the sale to TalkTalk

While the UK business had its problems, the broader Tiscali group was in serious financial difficulty. By 2008 the parent company had debts of around 500 million euros, accumulated through its years of expansion. It had already sold operations in Germany, France, the Netherlands and elsewhere to raise funds. The UK subsidiary was one of the last assets of significant value.

The company attempted to sell the UK operation from late 2008 onwards. Talks with Sky, BT and O2 all came to nothing. In March 2009 Tiscali's bank suspended loan repayments, and Renato Soru, who had left to serve as governor of Sardinia in 2004, returned to the board in an attempt to stabilise the situation. In May 2009, Carphone Warehouse agreed to buy the UK assets for £236 million in cash. The deal was completed on 3 July 2009.

The purchase made Carphone Warehouse the largest residential broadband provider in the UK, with a combined customer base of around 4.25 million subscribers, covering over a quarter of all UK homes. At £236 million, analysts noted that Tiscali could have sold for roughly twice that amount a year earlier, before the debt crisis and the global financial downturn depressed its value.

What happened to customers?

From late 2009, Tiscali customers began receiving letters informing them of a change. The Carphone Warehouse planned to consolidate everyone onto its TalkTalk brand. Customers on broadband-only packages faced a further problem: TalkTalk's standard service included a phone line, and those who wanted to keep broadband without one were told they would need to pay an extra £5 a month. Many former Tiscali customers found themselves facing a bill of around £20 a month for a service they had been paying considerably less for. By January 2010 the Tiscali brand had been formally retired, and all remaining customers were TalkTalk customers.

The transition was not smooth. The billing problems that had existed under Tiscali continued under TalkTalk, and were compounded by the migration of accounts between systems. Ofcom's subsequent investigation found widespread evidence of customers being charged for services they had cancelled. The Tiscali billing platform, which TalkTalk's own chief executive later described as a source of inherited errors, took years to be fully resolved.

In summary

Tiscali UK's story is the story of a company built for a different market than the one it ended up in. It arrived in Britain in the freewheeling late 1990s, when European internet companies were acquiring anything they could find and stock markets were willing to fund it. By the time the boom ended, Tiscali was stuck with infrastructure costs it could not fully cover and a customer base that expected better than it was getting. The cheap prices that attracted people were real; the service behind them was not consistently good. When the parent company ran out of money, the UK business went to whoever could pay, which turned out to be Carphone Warehouse at a steep discount. The customers carried on, many of them unaware of quite how much history was attached to their account number.