Industry Trend Analysis - CityFibre's Limited Scale Weighs On Full Fibre Roll-Out - SEPT 2017
BMI View: CityFibre's expanded investment will only drive a limited amount of competition, as the company lacks the scale and funding to be a nationwide player. A full fibre strategy would require a company large enough to be making these investments, as well as strong backing from policymakers.
CityFibre is looking to expand its network and capabilities by looking to raise GBP200mn (USD259mn) on the market, as well as acquiring wholesale company Entanet for GBP29mn. With the extra funding, the company is planning to cover more than 50 cities with gigabit broadband by 2020, from a current target of 42, as well as covering five to 10 cities by 2018 on the residential market. With the government promising a new investment fund for connectivity, for which it will raise GBP400mn with the same amount coming from private companies, there is a realisation that the UK needs to improve its broadband infrastructure, but realising this vision will remain difficult.
|RoI Remains Difficult|
|CityFibre KPIs (GBPmn), 2015-2016|
CityFibre, as well as Gigaclear, are looking to take advantage of the struggles of the two main broadband infrastructure providers in the country:
Virgin Media, the main cable player, introduced its GBP3bn Project Lightning plan in late 2015, but reported in Q117 that it had been delayed, after having potentially overstated the number of premises it connected in 2016;
BT, through its Openreach subsidiary, has mostly focused on upgrading its legacy copper network through vectoring, even if it has some limited plans for fibre and G.fast services. Intervention by Ofcom means that the entity is now legally separated from BT, compared to the previous functional separation regime, with the aim to drive more investment into advanced networks as Openreach is the main wholesale provider in the market.
CityFibre can provide a certain level of infrastructure competition, focusing on a limited number of cities, but even with this new investment it will lack the scale to fully drive a nationwide roll-out. This is because infrastructure is a very expensive business, with the need to spend heavily to make a future return, under a timeframe that can be lengthy, especially in terms of fibre. CityFibre's efforts, while laudable, are akin to local and municipal networks, a trend we have seen in several Northern European markets, and which can help accelerate the incumbent's own roll-out across the country. In a market like the UK, only a larger company would have the funds and the scale to undertake a major nationwide roll-out, even if it does not necessarily mean that it will be better and more efficient at doing so than a smaller player. There could also be the unexpected consequence of targeting the more profitable areas, meaning more competition there, but without a plan to cover the remotest part of the country.
' New Broadband Regulation Goes Beyond BT's Role ' , September 23 2015;
' CityFibre Deal: Openreach Structural Separation Pressure Rises ' , December 15 2015;
' FTTP Investment Welcomed, But Should Not Be Sole Focus ' , November 22 2016;
' Openreach Legal Separation Will Not Solve Broadband Supply Problems ' , November 29 2016;
' Innovation As Important As Competition For UK Broadband Market ' , March 13 2017.