Overturning the UK’s full fibre broadband deficit

At the end of April, AIM-listed UK alternative network provider (altnet) CityFibre recommended to its shareholders that they accept a £538m takeover by an investment consortium backed by Goldman Sachs. The consortium includes private equity firm Antin, an infrastructure specialist investment fund with a history of investing in the telecom sector.

The CityFibre news is a resounding endorsement of the considerable opportunity in the UK for altnets such as VXFIBER, CityFibre and others. Altnets are set to play a significant part in rolling out full fibre Gigabit-speed broadband in cities and regions not served by the duopoly of Openreach and Virgin Media.

The UK fibre market is up for grabs

In a statement, CityFibre Chairman Chris Stone said that private ownership will make it easier for CityFibre to access the extra funding it needs to deliver on its stated vision to provide full fibre infrastructure to 20 percent of the UK market.

Mr Stone’s statement demonstrates the inflection point that the UK has reached in the race to roll out Gigabit fibre infrastructure. The UK market for Gigabit fibre connectivity is up for grabs right now.

Nationwide, the penetration of fibre connectivity remains extremely low – according to Ofcom, in 2017 full fibre Gigabit-speed broadband was available to just three percent of the UK. In Scotland and Northern Ireland this dropped to a mere one percent. The UK also failed to make it onto the Fibre-to-the-Home (FTTH) Council’s European & Global Rankings in September 2017. This is unacceptable, embarrassing and needs to change.

Whichever provider is first to roll out full fibre into a city or region is odds on to own and retain that area for the foreseeable future. That’s because it’s unlikely that rival providers will waste their time and money overbuilding a newly installed network.

The UK’s glacial pace of full fibre roll out

Openreach and Virgin Media have received criticism for the glacial pace with which they’re rolling out full fibre connectivity across the UK. They’ve also been criticised for focusing only on densely-populated urban and suburban areas, at the expense of the UK’s more sparsely populated, rural regions.

Openreach and Virgin Media contend that for companies of their size, only large-scale deployments can deliver the returns and profits at the level needed to justify the effort and investment involved in full fibre roll out. Both are divisions of major listed companies (BT and Liberty Global, respectively), who each have sizeable market caps and who are answerable to sizeable shareholder bases.

Why would they invest time and money in expensive and ambitious full fibre installation projects in rural or disadvantaged areas – projects that might not deliver a return for many years (if at all)?

Altnets: agile, flexible and innovative

Independent altnets like VXFIBER, Gigaclear, Hyperoptic and others have the advantage of greater agility and flexibility. They also have experience and expertise of innovative business models proven to work at scale, whether in city centres or in rural communities

High-speed broadband connectivity plays a major part in encouraging greater social inclusion and supporting local economic development.

So if Openreach or Virgin chooses not to install Gigabit fibre in a city or a region because of the lack of a worthwhile ROI within a set time period, how can an altnet like VXFIBER afford to do so?

The open access model

The answer lies in the financing and business model of the altnet – specifically, the “open access” model, in which the altnet partners with a local third party, such as a local authority, a property developer, or a utility provider, and invests jointly in installing Gigabit fibre.

The multi-layered “open access” approach to building and managing network infrastructure has multiple advantages over a single telecoms operator or ISP owning and controlling every layer of the network – the fibre itself: the management layer: plus the actual services running over it for customers.

An “open access” full fibre Gigabit network creates multiple opportunities for the partners involved. They can choose to monetise their fibre assets directly by working with specialist providers like VXFIBER to launch services such as broadband for residential and business customers, as well as eGovernment features for residents. In this way, the partners can generate extra revenue and repay the debt they accumulated to finance the network in the first place.

Full fibre broadband is critical infrastructure

In today’s digital era, the UK’s need for nationwide Gigabit-speed broadband connectivity is more pressing than ever. Large incumbents like Openreach and Virgin have a significant role to play in addressing this need, but so too do altnets like CityFibre and VXFIBER. The planned multi-million pound takeover of CityFibre underlines their significance.

What’s essential is that all those involved – telcos, altnets, investors, local Government and national Government – bear in mind the long-term economic and social value to the UK of reliable, Gigabit-speed full fibre connectivity.

Broadband connectivity is now critical infrastructure and should be treated with the same importance as utilities like energy and water, or roads and railway. It’s simply too important to compromise in favour of short-term profit and appeasing shareholders.