CityFibre strikes Sky Broadband deal, sending BT shares downward

Under the agreement, from next year the Comcast-owned ISP will avail itself of CityFibre's nationwide FTTP network.

Details are scant, but presumably Sky will continue to offer services via BT wholesale arm Openreach's network in places where CityFibre isn't available. End users located in overlapping areas will likely be migrated to CityFibre as they recontract, while new customers are likely to go straight onto the CityFibre network when the deal becomes effective in 2025.

That network currently passes 3.8 million premises and is on course to reach 8 million once fully deployed. Thanks to CityFibre's extensive participation in the government's Project Gigabit programme, 1.3 million of these upcoming premises are located in rural and remote areas.

This network is also steadily being upgraded to 10 Gbps XGS PON, which can support symmetric throughput of up to 10 Gbps. A small but growing number CityFibre's retail ISP customers – including Vodafone and smaller provider Yayzi – are have launched multi-gig broadband offers.

Contrast that with Openreach, which has by far the largest FTTP footprint and is rolling out fibre at an impressive rate. However, as far as peak throughput goes, it is lagging. Last year it launched an asymmetric 1.8-Gbps product, and last week it finally got round to announcing a symmetric 1-Gbps broadband product.

"Sky's new partnership with CityFibre will mean we can provide fast, reliable and great value broadband to more homes across the UK. This will mean we are able to reach even more people with full fibre, which is essential for the modern home," said Amber Pine, managing director of connectivity at Sky.

"This partnership with Sky is a huge vote of confidence in our business and has cemented CityFibre's position as the UK's third digital infrastructure platform," added CityFibre CEO Greg Mesch.

That other digital infrastructure platform Mesch alluded to is Virgin Media O2 (VMO2), which is in the process of launching its own extensive wholesale operation.

"With demand for digital connectivity continuing to grow, CityFibre's network can provide the quality and reliability that people need and the infrastructure competition the UK deserves," he said.

The news sent BT's share price down by 6.9%, and yet it's not the most surprising development given Sky and CityFibre's history.

Indeed, Sky was an early backer of CityFibre's effort to compete with Openreach in metro areas.

More than 10 years ago, Sky and rival ISP TalkTalk established a joint venture with CityFibre to build an FTTP network in the city of York, using it as a testbed to judge consumer appetite and get to grips with the finer points of network deployment.

TalkTalk took control of that joint venture, renaming it FibreNation, and announcing plans to expand its footprint to 3 million premises. Funnily enough, Sky was its launch customer.

However, TalkTalk struggled to drum up the cash needed to fund the deployment. In 2020 it threw in the towel, selling FibreNation back to CityFibre for £200 million.

Now, a decade after embarking on that project in York, Sky and CityFibre are together again, sending a signal that wholesale competition in the UK is picking up. And while that's good news for end users, it could be portentous for wholesalers' bottom lines.