With over 100 companies now deploying fibre in the UK, the market is both fragmented and competitive. Consolidation looks inevitable. In this article, Robert Kenny of Communications Chambers explores the prospects for consolidation amongst UK fibre-deployers.
After a slow start, the UK now has over 100 companies deploying fibre, and in aggregate they plan to pass 84m premises. There are only 30m premises in the country, so this suggests that the average home will be passed by 2.8 fibre networks. The combination of fragmentation and competitive intensity means that consolidation is seen as inevitable. But inevitable is not the same as easy. Consolidation of the UK cable sector took 13 years, and saw the two leading consolidators go bankrupt. So how might altnet consolidation play out?
Certainly there are some potential synergies that may drive value creation through altnet deals– for example, the acquiror may bring a powerful brand or wholesale relationships that may help the acquired network up its revenue.
But there are also potential dis-synergies. Some altnets have a retail focus and others a wholesale one, and these business models may not be entirely compatible. Some altnets have promised large wholesale customers that they will not offer service to anyone else cheaper – what if the acquired altnet is already offering a lower price to someone else? And an acquisition may require a refinancing of the target’s debt. Since this would almost certainly be at a higher interest rate, this too would represent a destruction of value. Such factors will limit the number of viable deals.
Further, if a seller really wants to get good value for their business, they need multiple buyers to create an auction dynamic. The challenge is that in practice, any given altnet may have few realistic acquirors.
BT/Openreach is likely to be ruled out of most acquisitions by regulatory issues. Sky and TalkTalk appear to be happy to rent rather than buy access networks. Virgin O2and its parents already have a gigabit network across much of the country, and are planning further expansion – would they place much value on overlapping altnet fibre? CityFibre is certainly a potential acquiror, but is also building quickly. Other larger altnets have their respective niches, and each may only be relevant to certain target altnets.
Thus a would-be seller needs to carefully consider who their likely buyers might be. They also need to consider timing – waiting allows more time to build out network and (crucially) to develop the revenue streams that will truly underpin value. On the other hand, as time passes the risk of overbuild rises (by potential acquirors or other networks), reducing the prospects of a satisfactory exit price.
New players are still piling into the market – Ofcom has authorised 23 new carriers in this year alone – so it may seem early to be thinking about paths to exit. But value for shareholders will depend as much on a well-planned disposal as it does on a well-planned deployment.
If you want to see more detail on Robert’s opinions on this subject, download his more detailed paper, published in September 2022: Roll-up or roll on? Prospects for consolidation amongst UK fibre-deployers, September 2022
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