CityFibre set to raise £1bn as UK fibre competition heats up

Altnet CityFibre is said to be on the verge of securing new debt and equity funding that would give it an extra £1 billion to spend on its fibre deployment.

Sources cited by the Wall Street Journalon Monday claim that the company is close to selling a stake worth £500 million to Mubadala Investment Co., Abu Dhabi’s sovereign wealth fund. The deal would value CityFibre at more than £2 billion. It would also highlight just how attractive the ultrafast broadband market has become to investors, given that a Goldman Sachs-led consortium acquired CityFibre’s entire operation in 2018 for a little over £500 million.

As part of the deal, CityFibre also plans to issue new debt, which sources claim that together with the Mubadala deal would give it an additional £1 billion to fund its wholesale metro fibre deployment.

The company is in the midst of a £4 billion rollout project that aims to connect 8 million homes and 800,000 businesses to full fibre by 2025. Its Website currently lists 71 so-called Gigabit Cities, where CityFibre has either built, is building, or plans to build FTTP networks. In March, it identified a further 216 additional towns and villages that it wants to add to its coverage map.

It’s an expensive business though, and one that will take many years to earn a return, which is why attracting deep-pocketed backers like Goldman Sachs and reportedly Mubadala is so important.

The scope of CityFibre’s ambition is admirable given its humble beginnings as an outspoken altnet that decried the distinct lack of FTTP coverage in the UK. But times change, and now CityFibre finds itself under mounting competitive pressure to achieve sufficient scale to enable it to compete over the long term.

Indeed, incumbent BT, which spent decades sweating its copper assets for all they were worth, is now fully on board with full fibre. In May, it raised its FTTP coverage target to 25 million homes by 2026, up from 20 million homes. To reach that objective, its infrastructure arm Openreach has accelerated its deployment to 4 million premises per year. In parallel with its fibre rollout, BT’s mobile arm EE plans to deliver 5G coverage to half the UK population by early 2023.

Meanwhile, Virgin Media is plugging away at its network upgrade, dubbed Project Lightning. It is currently in the process of upgrading its cable network – which reaches 15 million premises – to Gigabit-capable speeds.

CityFibre won’t just be feeling the heat from the big players either. The UK’s altnet market is alive and well, with the likes of Hyperoptic rolling out FTTP networks in London and elsewhere. This year saw Hyperoptic strike deals with councils and housing providers in the Midlands that will see thousands of premises connected to full fibre. Its most recent deal was announced in June, and includes 8,000 houses owned by Birmingham City Council. In addition, out in the sticks, players like Gigaclear are deploying fibre in underserved communities that can prove that end user demand is strong enough to justify the outlay.

All told it’s an exciting time for the UK fixed broadband market. According to the latest figures from the FTTH Council Europe and IDATE, the country added 1.7 million FTTH/B lines in the 12 months to September 2020. Given the state of the market in 2021, and the various coverage targets doing the rounds, that number looks set for a dramatic increase.