CityFibre completes £200mn FibreNation acquisition

With TalkTalk shareholders approving the sale of FibreNation to CityFibre for £200 million, the wholesale infrastructure challenger has increased its rollout target to 8 million premises.

With an existing FibreNation network in York, construction projects underway in Harrogate and Dewsbury, as well as plans slated for Bolton, CityFibre has now set its sights on 62 towns and cities outside of London for fibre. The rollout of services to 8 million premises will eventually span to 100 towns and cities, as CityFibre continues its mission to be a scaled and nationwide competitor to Openreach in the wholesale segment.

“In the face of the rapid spread of the Coronavirus and its unprecedented impact on the UK’s society and economy, we believe that the need for world-class digital infrastructure has never been greater,” said CityFibre CEO Greg Mesch.

“Completing our acquisition of FibreNation marks an acceleration in our ability to deploy the critical future-proof digital infrastructure our country needs. By significantly expanding our rollout ambition to up to 8 million premises, CityFibre is helping to answer the call for a full fibre Britain.”

What this means for TalkTalk remains to be seen, though it appears its mission to challenge the ISP market by both owning the infrastructure and the relationship with the customer is drawing to a close. Sceptics might suggest this transaction is a sign of a struggling business, as a result of the lower-cost fibre services and the vast expense of deploying full-fibre networks, weighing heavily on the spreadsheets.

“The sale of FibreNation to CityFibre, in combination with a competitive wholesale agreement, enables us to continue our strategy to accelerate TalkTalk’s fibre growth for our residential and business customers, thereby delivering a superior customer experience at an affordable price,” said TalkTalk CEO Tristia Harrison.

This is of course another step forward for CityFibre. This is a company which is cash rich, thanks to it being acquired by a Goldman Sachs owned fund, allowing for aggressive construction of full-fibre networks, though acquisition is in the heritage of this business. Let’s not forget, CityFibre exists thanks to the acquisition and integration of distressed fibre businesses (H2O Networks, Fibrecity Holdings and Opencity Media, for example) in 2011.

On the construction front, CityFibre has been given the greenlight to continue its ambitious rollout from the UK Government. Prime Minister Boris Johnson has paid particular attention to the progress being made in the broadband segment, and recently requested deployment should continue during the outbreak as it will allow both society and the economy to function and to enable rapid economic recovery when the crisis is over.

CityFibre raises full-fibre table stakes to £4 billion

UK fixed infrastructure challenger CityFibre has committed another £1.5 billion for fibre deployment, taking the total investments up to £4 billion across 62 towns and cities.

While it does not want to be labelled as an ‘alt-net’ anymore, preferring the title of ‘scaled nationwide challenger’, the firm is certainly providing the financial incentive for the makeover. With plans for the deployment of full-fibre broadband now unveiled for 62 towns and cities outside of London, the infrastructure firm is increasingly becoming a very competent competitor to Openreach in the wholesale market.

“Britain’s need for a world-class digital infrastructure has never been greater which is why we stand firmly behind the Government’s plan for nationwide coverage by 2025,” said CityFibre CEO Greg Mesch. “Full fibre will play a critical role in levelling-up the UK and so today we are accelerating our plans, bringing full fibre to more towns and cities, even faster.”

Although Prime Minister Boris Johnson’s lofty ambition of 100% full-fibre broadband homes passed across the UK by 2025 is still somewhat of an unlikely target, the CityFibre plans will account for 8 million homes, roughly 30% of the UK total. Construction contracts worth £1.5 billion will be announced ahead of the summer, with all the locations named by the end of the year.

In bygone years, CityFibre has proven to be a worthy competitor in the small pockets it was able to challenge the status quo in, but since being acquired by Antin Infrastructure Partners and West Street Infrastructure Partners, CityFibre is a new beast. Thanks to the cash injection from the US financiers, the infrastructure giant has been promoted from regional nuisance to scaled wholesale alternative.

Interestingly enough, de-escalating the partnership with Vodafone is now starting to look like somewhat of a godsend. As part of the original agreement, Vodafone had exclusivity to deliver ISP services over new developments for a twelve-month period, though these commitments have now been extinguished.

With the aggressive nature of CityFibre’s deployment plan, we suspect Vodafone would not have been able to be a commercially attractive anchor-tenant for CityFibre. The new freedom to work with whoever, however, wherever and whenever is making CityFibre look like a very interesting player in the fixed wholesale game.

How much of a dent such deployment plans make in the Government ambition to be full-fibre ready by 2025 remains to be seen, Openreach and Virgin Media should not be forgotten about, though momentum is certainly gathering steam.

“We want to make sure every corner of the country benefits from world-class, gigabit speed broadband, so it is great to see CityFibre expanding out into 36 more towns and cities,” said Secretary of State for the Department of Digital, Culture, Media and Sport, Oliver Dowden. “We are working closely with industry to push ahead with a nationwide rollout and investing £5 billion so the hardest-to-reach areas aren’t left behind.”

Three to decouple traffic growth from price with CityFibre backhaul

CityFibre has been announced as the new preferred supplier for 5G backhaul for Three, as the telco aims to increase competition among its suppliers.

Three is the first major telco to be wooed by the CityFibre team, demonstrating the progress of the business over recent years. CityFibre should no-longer be considered a petulant disruptor in the connectivity world, but perhaps this is an indication the infrastructure challenger is a genuine contender.

“This is a huge vote of confidence in CityFibre from a national mobile operator with big plans for 5G,” said Greg Mesch, CEO at CityFibre. “Three’s decision to leverage our rapidly expanding networks nationwide shows the critical role full fibre infrastructure has to underpin 5G rollouts and reinforces CityFibre’s position as the UK’s third national digital infrastructure platform.”

“A competitive fibre backhaul market is critical for the fast and efficient rollout of 5G,” said Dave Dyson, CEO at Three UK. “CityFibre are aggressively rolling out fibre across Britain and our strategic partnership with them will use the UK’s largest 5G spectrum portfolio to deliver the fastest 5G network nationwide.”

As part of the agreement, CityFibre will connect the 5G sites which are set to go live in the coming months as Three launches its commercial 5G services. CityFibre will also provide Dark Fibre services to Three, and small cell access points throughout its city-wide networks, providing the local fibre capacity required to support 5G services in busy urban areas.

After talking to Three, this is an effort to future-proof it’s backhaul relationships against the growing tides of data consumption in today’s 4G environment and the forecasted 5G era.

The surge in data consumption has been regularly discussed in recent years, especially with the emergence of 5G, but it is important to remember this was an existing trend in the 4G era. As applications become more data intensive, telcos have had to bring down the price per GB to meet the demands of consumers. Three suggests traffic across its network could increase 20X thanks to 5G, but in 2010 the average consumer only used 269 MB of data per month.

As it stands, the price of data transmission is directly linked to the amount of traffic which flows across a network; the price per GB is fixed irrelevant of the volume of traffic. Three has said by diversifying its supplier base and increasing competition, the aim is to decouple price from traffic growth.

An oversimplification of this process would be to imagine economy of scale. The more of a service which is purchased, the price per unit decreases. The relationships which are in place moving forward are obviously much more complicated than this, though it does appear to be a case of Three attempting to ensure it is not backed into a corner with a single supplier holding the aces.

While this is a headline which has the potential to turn heads, diversification is a process which has been on-going within the Three business for some time.

BT Wholesale, a customer of Openreach, was the primary supplier of backhaul services for Three during the 4G era, though in recent years it has been unbundling BT exchanges for years. In July 2018, Three announced a major project to unbundle 177 BT exchanges with SSE Telecoms, while it has already been working with CityFibre to provide backhaul services in Hull.

The objective here is to have less of a reliance on a single supplier, BT Wholesale and Openreach as a result, and to improve diversification. It is working towards creating a more sustainable and healthy vendor ecosystem.

This is of course not the end for the Three/BT relationship. CityFibre can offer services in certain regions across the UK but not everywhere. SSE Telecoms will help fill the void, though there are locations where it is not commercially attractive for anyone to build out moving forward. These areas, where Openreach is the sole supplier, are subject to a price ceiling consultation from Ofcom.

With the likes of CityFibre and SSE Telecoms aggressively expanding networks, Openreach will certainly face tougher competition in the coming years. For decades, Openreach has maintained a defacto monopoly on backhaul services across the market, though the telco desire for reduced costs and resilience through supplier diversity does seem to be translating into fresh competition.

CityFibre network:

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.