As another UK alt-net emerges, consolidation might not be that far away

One of the more interesting developments in the UK telco field has been the rise to power of the alt-nets, though with more emerging each month, how many can the market tolerate?

The concept of ‘alternative network’ providers is an attractive one. These are companies which secure funding through one means or another, with the ambition to challenge the status quo. In some instances, this means deploying fibre infrastructure in regions which have largely been ignored as a result of being commercially unattractive, or a lower priority for the network operators.

The latest to emerge is a North Yorkshire County Council wholly-owned subsidiary named NYnet. Supported by the county’s seven district councils, NYnet was one of the winners of the Department of Digital, Culture, Media and Sport’s Local Full Fibre Networks Challenge Fund. With investment from central government to bolster the bank accounts, the £15.1 million project is underway.

“We are very excited to be entering the delivery phase of our new full fibre network, which we are delivering in partnership with SCD Group,” said Scott Walters, CEO of NYnet. “This new network will improve speeds and user experience for many public sector bodies in North Yorkshire including schools, GP surgeries, hospitals and libraries.”

The initial focus of the project to begin with will be Selby and Easingwold, with Malton and Pickering to follow later this month. Other areas, such as Scarborough and Ripton, have also been slated for deployment, as the team sets out to connect 370 public sector health and education building with full-fibre broadband over the next 18 months.

For the less urbanised areas of the UK, the rise of the alt-nets is a welcome development. How long would it have taken for the traditional players in the telco world to connect these sites with full-fibre infrastructure? Some might say it is on the horizon, but with the majority of the UK to ‘fibre-up’, priorities might lie elsewhere.

However, you have to wonder about the long-term health and sustainability of these companies. The telecommunications industry is one which thrives on scale, such are the CAPEX and OPEX demands on the spreadsheets, and the very nature of some of these alt-nets prevents them from scaling. NYnet is an example, as the North Yorkshire County Council is unlikely to greenlight funds for expansion beyond its borders.

Another interesting element is the patch-work of connectivity options is emerging throughout the country. When talking to connectivity service providers, enterprise customers want scale. They want to be able to rely on the smallest number of suppliers to remove complications and reduce the risk of anything going wrong.

You do have to wonder how many alt-nets the UK can tolerate to ensure high levels of maintenance and upgrade investments without the price to the end-user rising too much. The number of alt-nets spread throughout the UK is starting to become quite large.

To start with, you have the larger players such as CityFibre, HyperOptic and Gigaclear. These are all players with national ambitions, and generally have the backing of private investors. The deep pockets of these companies should be a concern to traditional providers as there are very aggressive deployment plans in place. The difficulty with the emerging alt-net segment is the smaller players.

B4RN, is an alt-net in the North, Community Fibre focuses on London, County Broadband is a FWA specialist for the rural communities, Fibrus is based in North Ireland, Full Fibre serves customers in the South West and Wessex Internet is focused on, funnily enough, Wessex.

This is only a snap-shot of the dozens of regionalised players who are running networks, or play to deploy infrastructure, across the UK. And while customers who are located within the limited coverage area might be thrilled with these networks, we doubt this hot-potch of competition is sustainable in the long-run. These companies do help prevent overbuild in the urbanised areas, though we suspect they are acquisition targets of the bigger players.

The UK Government is currently happy with the way alt-nets are springing up. These are companies which do of course focus on the areas which are largely ignored by the bigger telcos and provide alternatives to drive investment and competition across the market, though once the networks have been deployed it could be viewed as mission complete. If the objective is to fibre-up the nation, once the infrastructure is in the ground, it doesn’t largely matter who is running them.

There will have to be attention paid to ensure localised monopolies are managed responsibly from a pricing perspective, but consolidation can help drive the telco industry forward. We suspect the likes of CityFibre, Virgin Media and Gigaclear might be keeping an eye on the development of the smaller alt-nets. These could be very attractive acquisition targets to sustain a challenge to the dominance of Openreach.

The most difficult part of the telco business is network deployment. Not only do you have to source materials, find a work-force and foot the bill, you have to deal with the red-tape mazes for planning permission and impact to the local economy, such as road closures. The bureaucracy can be a nightmare for telcos, especially when you are dealing with multiple layers of public sector authorities.

The majority of these hurdles and potholes have already been negotiated by the dozens of alt-nets spread across the country. For a company like CityFibre, which is attempting to be an alternative wholesaler of fibre connectivity to Openreach, spending a couple of hundred million to acquire several of these smaller players could be a simpler means to expanding its geographical footprint.

The emergence of the alt-nets is driving UK infrastructure forward. The digital divide is being addressed in some rural communities, but by no means all, and the presence of fibre is driving the status quo into its own investments in gigabit-capable infrastructure. This is a development which can only be viewed as a positive.

However, in a small market like the UK, we question whether it is sustainable to have this many providers. We suspect there might be a consolidation wave on the horizon, and it might well be the larger alt-nets who are signing the cheques.

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