CityFibre buys FibreNation from debt-laden TalkTalk for £200 million

CityFibre has announced it will acquire FibreNation from TalkTalk for £200 million, as the latter has struggled to source funds to help it meet the three million FTTH connections it targeted.

As part of the deal, TalkTalk will become a wholesale customer across both consumer and business markets. Work has already begun on the full-fibre network, offering services to more than 100,000 premises in York and Dewsbury, and even with projects set to break ground in Harrogate, Knaresborough and Ripon, reaching the 3 million objective was becoming more difficult to imagine.

With cash-rich backers in the form of Goldman Sachs, CityFibre can more realistically deliver on these promises. The firm has upped its target to 8 million FTTH homes-passed by 2025, up from 5 million.

“Today’s announcement establishes CityFibre as the UK’s third national digital infrastructure platform allowing millions more consumers and businesses to benefit from access to faster, more reliable services,” said CityFibre CEO Greg Mesch.

“The UK is a service-based economy, and this runs best on full fibre. Ensuring national coverage is critical and this can only be achieved by driving infrastructure competition at scale. This deal demonstrates the appetite from industry to see it established.”

Rumours of this transaction has been swirling through the industry for some time now, though it appears the talks were put on hold following the free-broadband-for-all pledge made by the Labour party ahead of last months’ General Election. Nationalisation of Openreach would certainly undermine investment decisions, though the duo now believe the deal should be complete by March.

For CityFibre, this is a page from the playbook of old. This is a firm which was founded after purchasing and merging several, independent distressed financial assets.

FibreNation was founded in 2018 as an independent company to deliver the TalkTalk fibre rollout strategy. Under the leadership of CEO Tristia Harrison, TalkTalk has evolved into a much more combative telco, attempting to disrupt the connectivity status quo and regularly criticising its more established rivals. Harrison’s management and PR approach seems very similar to CityFibre CEO Greg Mesch.

Taking advantage of the enthusiasm in fibre-connectivity, TalkTalk set out an ambitious target of reaching 3 million homes with full-fibre broadband by 2025. However, attracting investment from third-parties soon appeared to be the only means by which this could be done. This is where TalkTalk has struggled in recent months.

Infrastructure investor InfraCaptial, part of the M&G Group, looked to be the most likely candidate to foot the £1.5 billion bill, though talks fell through. Reports suggest InfraCaptial did not value an 80% stake in FibreNation in the same way as TalkTalk. Since that point, TalkTalk has been in discussions with the likes of iCon and Macquarie, though it seems CityFibre was the best option.

While TalkTalk will become the anchor tenant for the network as it is being deployed, this is far from best-case scenario. TalkTalk has said the funds will be used to ‘strengthen the balance sheet’, which could mean numerous things, though as the team reported net debt of £1.041 billion during the last earnings call, it would be fair to assume it will be used to reduce the burden.

For CityFibre, this is a win. The company was founded by collecting distressed fibre assets and merging into a single entity, and it has spoken about doing the same to fuel growth in the future.

CityFibre has ambitions to challenge the likes of Openreach and Virgin Media on a nationwide, scaled basis, though the number of ‘alt-nets’ is creating a fragmented competitive landscape. This is good for the consumer, as price wars will emerge, though it is not sustainable for the industry. However, if you have a cash-rich parent-company like CityFibre, it is a waiting game; smaller fibre companies will become financially stressed, presenting good value for network growth by acquisition.

Adding FibreNation’s assets into the mix, CityFibre will soon have a fibre footprint in more than 100 towns and cities outside of London. It is quickly achieving the scaled vision the management team have often spoken about and will soon become a much more viable rival to the Openreach wholesale business.

As a result of the agreement with TalkTalk, CityFibre has also had to restructure its partnership with Vodafone. The original agreement offered exclusivity for Vodafone to deliver fibre services for the time which networks were being deployed in each city, though the new agreement offers Vodafone 12-month exclusive basis as homes become available for service in each of the 12 towns and cities covered in phase one of the deployment. CityFibre will now be free to discuss terms with other ISPs.

With Vodafone and TalkTalk confirmed customers of CityFibre, and rumours swirling that it might be about to poach Sky from Openreach, the firm is adding commercial credibility to an extensive bank account. It does appear CityFibre is evolving from the moany, thorn in the side it was a few years back, to a genuine, nationwide alternative to Openreach.

The UK fibre industry has reached an inflection point

Full fibre has become a political hot potato but increasing competition in the sector is far more likely to move things along.

A recent report in the Telegraph indicated independent fibre company CityFibre wants to change the terms of its agreement with Vodafone so it can play the field a bit more. We were unable to get any comment from the company on that story specifically, but it is consistent with what CityFibre CEO Greg Mesch recently told us.

Today’s CityFibre sees itself at the vanguard of a wave of independent fibre providers that are striving to be the third national player, alongside Openreach and Virgin Media. It stands to reason, therefore, that CityFibre would want to work with as many ISPs and operators as possible, while still honouring its commitments to Vodafone. The fact that Vodafone itself is reserving the right to play the field when it comes to fibre partners has presumably served to strengthen this urge.

This coincides with increased investment interest in fibre. CityFibre itself has been the recipient of several rounds of investment in recent years and a similar sort of thing seems to be going on in France. Couple that with the fact that UK politicians now seems to think talking up fibre is a potential vote winner and you have an industry that seems to be on the cusp of a boom.

Political interest is very much a double-edged blade, however. The flip side of governments and regulators aiming to create as benign a regulatory environment as possible is the ambition of ambitious socialists to appropriate the whole industry and do it themselves.

There have been reports that CityFibre was about to buy FibreNation from TalkTalk, but that everything’s on hold until we know whether Labour will be able to have its wicked way with the industry. It’s not hyperbolic to say the future of the UK fibre industry rests on the outcome of the imminent general election.

Vodafone extends broadband reach with new Openreach agreement

Vodafone has broadened its fibre footprint to Birmingham, Bristol and Liverpool after signing a new wholesale agreement with Openreach.

The Vodafone business might be primarily known as a mobile business to most, though it has been making strides into the broadband world after signing an agreement with CityFibre last year. What this wholesale agreement with Openreach looks like is an effort by Vodafone to expand its fibre footprint in areas where its primary partner, CityFibre, does not have a presence.

With this wholesale agreement in place, Vodafone will soon be able to offer fibre broadband services in 15 locations throughout the UK.

“Vodafone is committed to a full fibre future and to creating the infrastructure Britain needs to compete and win in the digital era,” said Vodafone UK CEO Nick Jeffery.

“This initiative with Openreach builds on our existing commitments with CityFibre and underlines our belief in the power of digital technology to connect people for a better future and unlock economic growth for the UK.”

As part of the agreement, Vodafone’s Gigafast Broadband service will be available to customers in Birmingham, Bristol and Liverpool on the Fibre-to-the-Premises (FTTP) network from 2021. The first phase of the Openreach rollout is currently underway and the team plans to be able to reach as many as 500,000 customers on this network by mid-2021.

For Vodafone, this is a wholesale agreement which makes sense. The partnership with CityFibre looks to be one where the terms and conditions are very favourable to both parties, however Vodafone will want to be a service provider which can offer broadband to everyone. The CityFibre deployment strategy means secondary partners will have to be sought.

As part of the CityFibre agreement, Vodafone has made a minimum volume-based commitment for 10 years which increases over the period to 20% of the initial one million premises. In return, Vodafone has a period of exclusivity for consumer fibre-to-the-home services from CityFibre for 12 months, though the time-period is nuanced depending on location and the phase of network construction.

The CityFibre deployment strategy is also a point to consider here. CityFibre is targeting small and medium sized cities, as well as larger towns. These are areas which are generally not being targeted by the likes of Openreach or Virgin Media for fibre deployment. The idea is to create a scaled challenger, and targeting areas where rivals aren’t is a perfectly reasonable strategy.

In short, Vodafone will use CityFibre infrastructure as default, and Openreach in locations where it is not available.

For Vodafone, this partnership demonstrates something which many will see as a plus; ambition. The team is seemingly attempting to expand the fibre service offering to more regions across the country, which should add greater confidence in its pursuit of making a meaningful impact on the segment.

Hyperoptic switches private equity owners

UK independent fibre provider Hyperoptic has had the majority of its ownership switched from lot of investment companies to another.

The new lot in control of the company is HKK, an investment company that seems to get involved in every industry in every part of the world. It acquired its stake in Hyperoptic from fellow investment companies Newlight and Mubadala. The terms of the deal weren’t revealed so we don’t know exactly how much of Hyperoptic owns or how much it cost, but this does seem to be the first time is has had a single majority owner for a while.

“We are incredibly grateful to Newlight and Mubadala for their unwavering support and significant contributions to the success of Hyperoptic,” said Hyperoptic CEO Dana Tobak, who will remain in place. “Currently, only 8% of the UK has access to full fibre and less than half of that to symmetrical gigabit services.

“We are confident that with the support of KKR and their significant expertise enabling high-growth businesses, our ambitious infrastructure plans to build our hyperfast network out to two million homes by 2021 and five million by 2024 will be realised.”

“Hyperoptic has a market-leading position and superior consumer product,” said two people from KKR in unison, apparently doing some kind of duet. “The business is strongly positioned to meet the growing demand for full-fibre services in the UK through further investment and national roll-out, supporting housing development and renovation. Our investment in Hyperoptic builds on KKR’s strong track record in telecommunications infrastructure in Europe, investing in and deploying next-generation digital connectivity.”

Meanwhile fellow UK fibre indie CityFibre has started an industry consultation on the role of such companies in the overall switch from copper to fibre. The move has apparently been prompted by the progress of CityFibre’s rollout in Stirling, which is set to switch to fibre-inly next year. There needs to be some kind of consensus about how best to support legacy services when the switch happens, the establishment of which seems to be the main point of this consultation.

“Only by collaborating as an industry, with the full support of government and Ofcom, will we be able to switch-over the UK from legacy copper networks to a future-proof full fibre platform,” said Greg Mesch, CityFibre CEO. “Our consultation will ensure that we play our part in this switch-over and that the eventual retirement of the copper networks is managed in a way that promotes sustained infrastructure investment from a range of organisations.

“With rollouts underway to reach over 20% of the UK market, our city-wide full fibre networks like that in Stirling will soon be of sufficient coverage to play their part, enabling a copper to fibre switch-over for the benefit of Communication Providers and their customers. Through our consultation, we look forward to engaging with the whole industry, including Openreach and BT Retail, to help develop a national plan to efficiently and smoothly upgrade Britain.”

With such a healthy independent infrastructure sector in the UK it seems clear some kind of best practice consensus is called for and it’s good to see someone try to get the ball rolling on that. Mesch will be speaking live at the Telecoms.com LIVE event in London on 7 November and this topic seems likely to come up. If you want to attend just click here to register.

CityFibre jumps on the BoJo bus

With Boris Johnson (BoJo) settling into his new home in No.10 Downing Street, CityFibre is one of the first telcos to champion the office of the blonde bombshell.

“As the original champions of full fibre in the UK, we are delighted to see the new Government recognise the vital importance of rolling out this transformational infrastructure, and we stand ready to work with Government to help achieve this vision,” a CityFibre spokesperson stated.

The UK is now entering into the realms of the unknown, though there is one thing which we can be certain of over the next few months; politics is going to have a very different taste with BoJo at the helm. We couldn’t imagine a character more perfectly opposite to former-Prime Minister Theresa May, at least not in the Conservative party anyway.

“Full fibre connectivity is key to introduce a new generation of services, catalyse innovation, promote creativity and drive the economic and social development of the UK,” the statement continues.

What will be interesting to understand is whether the 100% penetration of full-fibre broadband services by 2025, a target hyped by BoJo over the last few weeks, is a genuine ambition or hot air. History has told us that BoJo has a tendency to get a bit over-excited when it comes to facts and figures, and this one might be a little ambitious.

The only certainty is change. BoJo will likely be more aggressive when it comes to Brexit and probably more pandering when it comes to the relationship with the US. BoJo is somewhat of a pet favourite of US President Donald Trump, fighting with former-UKIP leader Nigel Farage for most loving strokes from the Commander in Chief.

Some might say this is a good position for the UK, with Brexit forcing the Government to look further afield for lucrative trade deals, though the Huawei saga will continue. The Supply Chain Review announcement left no-one with clarity over the UKs position, though with BoJo’s White House relationship it might spell trouble. The can has been kicked down the street and it has landed firmly in BoJo’s office.

After a 24-hour period which some media sites have been describing as a ‘Cabinet Massacre’, the industry will also have to get to grips with a new Secretary of State for Digital, Culture, Media and Sport. MP for Loughborough Nicky Morgan has assumed control of the department, and her CV can tell you why…

After working as a corporate lawyer at Travers Smith specialising in mergers and acquisitions, Morgan moved in-house to corporate law and was then elected as an MP in 2010. Since that point, Morgan has as the Economic Secretary to the Treasury, Financial Secretary to the Treasury, Minister for Women and Equalities, Secretary of State for Education and Chair of the Treasury Select Committee.

Looking through the ‘They work for you’ website, Morgan has not contributed to any discussions which concern technology, media or telecommunications in recent months. An interesting choice for DCMS and an interesting couple of months in store as Morgan gets herself up-to-speed.

CityFibre adds 14 more names to the full-fibre list

CityFibre has entered into the next phase of its challenge to the connectivity status quo with an additional 14 towns and cities to experience the full-fibre euphoria.

Although CityFibre has always presented itself as a challenger to the status quo, it was little more than an also ran until investment found its way across the Atlantic. With capital secured from Goldman Sachs’ Street Infrastructure Partners fund, CityFibre has been buoyed to build out its fibre spine into a genuine connectivity challenger. This latest expansion will take the number of full-fibre deployments across the UK to 26.

“CityFibre’s sole purpose is to deliver the future-proof digital infrastructure the UK deserves,” said CityFibre CEO Greg Mesch.

“With a new Prime Minister set to increase government’s ambitions for the pace of full fibre rollout, we are delighted to welcome another 14 towns and cities to our Gigabit City Club. These Gigabit Cities will not only gain new full fibre networks that will spark their digital transformation, but also unleash the benefits that only competitive infrastructure investment can bring.

“Our rollout to five million homes is gathering momentum. We have now confirmed 26 locations and over two million homes in our programme. We are investing, we are building, and we are connecting customers to networks of the future.”

The new towns and cities on the CityFibre expansion roadmap are; Batley, Bradford, Derby, Dewsbury, Doncaster, Inverness, Ipswich, Leicester, Lowestoft, Newcastle-upon-Tyne, Rotherham, Slough, Swindon and Worthing. These new projects will take the number of homes connected by CityFibre to two million, once completed of course, with CityFibre estimating the construction will create 3,5000 jobs.

For the UK, such ambitious moves will be nothing but good news. After ignoring the call for full-fibre connectivity for years, the Government is certainly taking an aggressive approach now. Not only are Openreach and Virgin Media aggressively expanding, numerous other challengers, nicknamed ‘alt-nets’ are providing additional momentum.

CityFibre might be the most recognisable name in the alt-net field, though others such as HyperOptic and Gigaclear are becoming more than a flash in the pan. There might be a need for consolidation in the future, but right now the additional competition is forcing aggressive geographical expansion of full-fibre networks.

CityFibre puts forward the case against telecoms consolidation

Whenever CityFibre CEO Greg Mesch takes the stage at an industry conference you can expect a combative presentation and once again he delivered.

There was of course the customary pop at Openreach and the odd moan about the way fibre is advertised, but the crux of the talk at Connected Britain this morning focused on competition. No-one in the industry is brave enough to suggest competition is bad, but there are nuances to every argument. This nuance from Mesch effectively undermined the recurring argument that consolidation is good.

“Whoever takes over from Sharon White at Ofcom must not only encourage competition but protect it,” Mesch stated.

Competition is a buzzword which can be applied to almost every facet of the industry, and CityFibre has certainly benefitted from the hype. This is not to say the focus from government and regulators to promote competition is the only reason CityFibre is a success, it did after all spot a weakness in the fibre market and aggressively capitalised ahead of Openreach. But a nod to the desire to promote competition should be made.

Intensifying the focus on increasing competition will continue to benefit CityFibre, and arguably it will continue to benefit the UK, however it does present a problem for others in the telco industry. The more successful CityFibre is, the more the argument that CSP consolidation will be a good thing.

“The spark of competition has transformed into a small flame, but that small flame can be snuffed out if not protected,” Mesch stated.

It hasn’t been long since the UK was captured by the Openreach monopoly, and even after Virgin Media entered the fray, the country wasn’t exactly a competitive hotspot. CityFibre has added another dimension and the growth of ‘alt-nets’, such as HyperOptic, is further adding variety.

The UK telco landscape is certainly changing, and CityFibre has evolved as a business. To describe it as a plucky challenge would be a bit unfair nowadays, especially with the financial injection from Antin Infrastructure Partners and Goldman Sachs. Mesch said the board has approved expansion plans, and soon enough CityFibre will have deployed a fibre spine in more than 70 locations around the UK.

The success of CityFibre is arguably a factor which is pushing Openreach towards a fibre-first mentality, perhaps because Mesch and co. proved there was appetite in the market. And elsewhere, there are more competitors appearing on a more regional basis. HyperOptic is gaining scale in London, Toob has a presence in Southampton and Gigaclear is growing in the South-West.

Perhaps most importantly, the alt-nets are now being considered as realistic alternatives.

At the same conference, Sky UK CEO Stephen van Rooyen pointed out the company had unveiled an RFP in March with plans to announce the selected partners in the Summer. Sky is taking an interesting approach here, with plans to work on a regional basis with alt-nets instead of taking a nationwide procurement approach.

Arguably, because of the likes of CityFibre and the increasing popularity of the alt-nets, fibre is being pushed up the agenda and this isn’t even considering the ludicrous and idiotic statements made by Tory Leadership content Boris Johnson.

For the UK Government and regulator, the increasingly prominent role of fibre validates and justifies its pro-competition, anti-consolidation position. If the fibre landscape can benefit from increasing the number of players, the same arguments and theories can be applied elsewhere. This success effectively undermines any pro-consolidation voices which might still exist.

CityFibre bags £1.1bn for nationwide fibre rollout

During yesteryear, CityFibre was known for moaning for the sake of moaning, but in securing a debt package of £1.12 billion, the firm’s ambitions are starting to look very real and very interesting.

Seven banks have financed the transaction, ABN AMRO, Deutsche Bank, Lloyds Bank plc, Natixis, NatWest, Santander and Société Générale, which will serve as the first installment of CityFibre’s £2.5 billion commitment for a nationwide fibre rollout. CityFibre has given itself a target of providing fibre to five million homes, a third of the Government’s target of 15 million, by 2025.

“The appetite from these institutions to support our financing is further evidence that CityFibre’s strategy is the right one for the UK,” said Terry Hart, CityFibre’s CFO.

“As our networks are rolled out, this will benefit everyone, driving innovation and increasing fibre penetration across the UK, providing the future-proof digital connectivity the UK needs. CityFibre’s target to reach five million homes by 2025, as well as thousands of businesses and public-sector sites, will catalyse huge economic growth in regional towns and cities across the country.”

CityFibre made it abundantly clear in its statement that this is an endorsement of the firm’s business model from heavy hitting financial institutions, and perhaps it does indicate a change in attitudes from investors.

Back in October, we attended an investor panel session at Broadband World Forum featuring the likes of the European Investment Bank and also Amber Infrastructure, a specialist venture capitalist firm. The message was clear from this panel session; investors are increasingly happy to fuel fibre rollouts as the business case has been justified and consumer demand has been validated.

This is where CityFibre sits. It doesn’t want to be a telco but become a serious infrastructure player. Owning the relationship with the consumer is of zero interest but creating a nationwide alternative to Openreach and becoming a connectivity wholesaler is the big picture. However, to be considered a viable alternative, there needs to be more of a presence than there is today.

Telcos don’t want to have a patchwork of relationships across a country to meet the connectivity demands. Multiple relationships create more overheads and more opportunity for something to go wrong. CityFibre has made good progress in rolling out fibre spines in numerous areas across the UK, but the gaps will have to be plugged if it wants to be a viable and realistic alternative to Openreach.

That said, CityFibre is looking like a business which has the right ingredients for a market which is primed for disruption. Aggressive ambitions, a head-strong CEO and the confidence of being owned by one of the world’s most powerful businesses. CityFibre is a very strong contender to make a genuine and permanent dent in the connectivity infrastructure game.

And a £1.1 billion investment from seven major financial institutions is a very good place to start.