Has the runway just gotten shorter for UK fibre consolidation?

10 October 2024

Consolidation in the UK fibre market has been expected for some time, driven by rising debt costs and lower-than-anticipated customer take-up. However, recent financial struggles at the likes of Hyperoptic suggest this moment may be approaching faster than anticipated. The company’s latest results revealed significant losses, largely driven by interest costs doubling year-on-year, and a warning of “material uncertainty” over its ability to continue as a going concern.

CityFibre, the largest UK altnet, faces similar challenges, with its debt exceeding £3bn and the cost to service it rising steeply. Both companies illustrate the mounting pressure on the UK’s alternative network providers (altnets), who are trying to carve out space in a highly competitive and capital-intensive market.

A shrinking runway for UK fibre builders

While the eventual endgame has long been expected to result in two or three major players – most likely BT, NexFibre, and possibly CityFibre – the current landscape suggests smaller players may need to find a way out sooner rather than later. Rising debt and slower-than-expected customer growth mean the runway for independent players is short. The question for most altnets is therefore how they can navigate to a profitable exit rather than a loss-making one?

Making themselves attractive targets

Altnets must focus on becoming attractive acquisition targets. The focus needs to shift from aggressive expansion to financial sustainability.

• Improve Take-Up Rates: Many altnets’ take-up rates sit below 20%. Increasing customer take-up will be crucial in driving revenue growth and easing debt pressure. Altnets should work to maximise the value of their existing network footprint before expanding further.
• Focus on capital efficiency: With limited resources, smaller altnets need to prioritise where they build. Expansion should focus on high-value areas, avoiding overbuilding in regions already well-served by potential acquirers. The main exception to the rule here is nexfibre, which has sought to overbuild competitors in its initial rollout, likely in an attempt to push consolidation.
• Think Strategically About Expansion: Aligning expansion plans with the interests of potential future buyers could make smaller altnets more appealing acquisition targets – for example, the recent Netomnia-Brsk merger (which we wrote about here) is occurring as neither party has overbuilt the other.

Conclusion

The window for independent players in the UK fibre market is closing fast. Altnets need to pivot toward profitability and strategic growth to ensure they are well-positioned for acquisition. The runway has indeed gotten shorter, and those who fail to adapt risk being left behind.

The situation in the UK fibre market serves as a cautionary tale for fibre builders worldwide. Rising debt costs, slower-than-expected customer adoption, and intense competition are not unique to the UK. As countries around the globe invest in fibre infrastructure, the challenges faced by UK altnets may soon be mirrored elsewhere.