There is a gold rush taking place in the UK right now. Private equity barons and telecoms cowboys are pouring money into BT Openreach challengers.
Last month Abu Dhabi’s Mubadala Investment Company and the IKEA holding company Intergogo injected over £1bn in CityFibre. It was the largest single round of funding into a UK full fibre network to date, bringing the total amount of capital raised by CityFibre to a whopping £4bn since its inception in 2014.
CityFibre isn’t the only alternative network to take on BT Openreach’s broadband network monopoly. In the UK today, there are an estimated 150 other networks. Together their investment programmes – funded by some of the world’s largest private equity houses, including KKR, Macquarie and Oaktree Capital Management – total £12bn up until 2025.
Even the Russians are bringing money to the table, with billionaire oligarch Mikhail Friedman pledging £1bn to roll out fibre in East Anglia.
The wave of private capital comes as the UK government scrambles to bring the nation up to speed (pun intended) in terms of upgrading its broadband network from 20th century copper cables to 21st century fibre optic lines.
The UK lags behind its European and OECD counterparts, with only around 20 per cent of households having access to a full fibre network at the end of 2020, compared to over 90 per cent in Portugal. To catch-up, the UK is now deploying fibre at the highest rate in Europe.
But where is the consumer in this fibre frenzy? The government’s decision to leave it to private companies to determine where and when to build could backfire.
Total network build plans represent more than double the amount of premises in the UK, meaning there will be significant overbuild between network operators in some areas, whilst other rural or less affluent areas – where returns cannot justify the investment costs – are being ignored.
The expected disparity in access to gigabit-capable networks between the country’s poorer and richer communities is going to exacerbate the digital divide and hamper economic development. With so much of daily life online since Covid-19 hit last year, we cannot afford to leave anyone without access to fast and fair internet.
And while billions of foreign investment is going into laying cables, the fragmented alternative network market is struggling to execute its growth plans and deliver the consumer penetration it has promised its investors. Alternative networks are by their nature infrastructure, not consumer plays. As such, their strength is in building infrastructure rather than the software and operations needed to serve consumers.
While CityFibre boasts that it has struck deals with Vodafone, TalkTalk and Zen Internet to provide consumers with access to its networks, integration is taking years, leaving many consumers unable to access a full fibre connection even where the network has already been built.
The incumbent telcos do not have the software and technology capabilities to execute the required integrations at speed. The fragmented market and a lack of industry-wide standards for application programming interfaces (APIs) to get systems talking to each other further complicate matters.
In the 1980s, independent cable companies sprung up across the country as the market was deregulated. The end result was a period of consolidation that left the UK with Virgin Media as its sole cable provider. Similar consolidation is expected in the fibre market, but it could take years and consumer interests are unlikely to prevail.
In the meantime, there is a gap in the market (and funding) for an independent player to aggregate supply and access for the consumer and ensure that the network being built is also utilised.
An internet service provider with access to the nation’s entire fibre footprint, will be able to negotiate the best rates across and operate the most efficient marketing budget – ultimately lowering prices for consumers.
Fast forward five years from today: we’ve spent billions building a 21st century full fibre network, but we lack 21st century technology, marketing and customer service. We need to get the fibre “gold” out of the ground, and into people’s hands. This is where the smart money should go next.