Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Taking on incumbents is tough. Just ask the UK’s hundred or so alternative network providers duking it out against dominant BT’s Openreach to provide full fibre broadband services. Can this week’s £2.3bn fundraising by CityFibre, the biggest of these so-called altnets, help rejig the landscape?
Altnets have made decent inroads on BT’s turf, reaching 16.4mn premises at the end of last year, according to the Independent Networks Cooperative Association, a trade group. Openreach, by comparison, counts 19mn.
But rolling out networks is a painfully capital-intensive business. Funding is always welcome but doesn’t last long as they burn through cash. CityFibre’s raising brings total investment in altnets to around £20bn since 2020, yet last year the sector was still in the red to the tune of more than £1bn, calculates Enders Analysis.
Spending continues even after the infrastructure is in place: customers have to be lured in and then connected. Enders Analysis reckons that altnets need an ebitda margin of 35 per cent or more in order to be cash flow positive, after taking account of outlays that don’t appear on the income statement, such as some customer acquisition costs.
Demand isn’t living up to promise either. While the idea of competition is every bit as attractive to consumers as it is to regulators, the reality is that switching providers is a hassle. Besides, one consequence of competition was that the incumbents spruced up their act. BT accelerated its snails’ pace rollout of Openreach and brought in aggressive pricing to retail providers upgrading to full fibre. Ofcom, approving the pricing in May 2023, conceded it gave stiffer competition to altnets but was not a barrier.
Still, BT investors fancy its chances of repelling the altnets. Shares are up by about a third since the telecoms regulator gave it that green light, roughly double the gains on the broader FTSE 100.
Even a cashed-up CityFibre is unlikely to put BT in a lather. The upstart is far behind in terms of scale, reaching 4.5mn premises. Still, the competitive pressure is likely to increase, especially if altnets continue to join forces. CityFibre itself is a consolidator, using shares to buy up smaller rivals, while Netomnia and Brsk last year teamed up to give a combined network of 1.5mn premises passed, and aims to hit 3mn by the year end.
Consolidation suits government goals too; the aim is to unleash competition, not a wave of bankruptcies. Indeed, it is not for nothing that the UK government has chipped in to fund raisings by altnets, including the latest CityFibre round. Altnets have proved they can build out networks. If they can muster the scale and customers to sustain them, then maybe BT will have cause to sweat.
louise.lucas@ft.com
