Rural FTTP Broadband ISP Gigaclear Headed to the London Stock Exchange

Gigaclear, which specialises in rolling out true 1000Mbps capable fibre optic (FTTP/H) broadband services to rural communities across the United Kingdom, looks set to float its way onto the AIM market of the London Stock Exchange (LSE) in order to initially raise an additional £20m to help fund an even more aggressive expansion strategy.

Readers might recall that Gigaclear only recently secured private investment worth £7.75 million to help fund the next phase of its growth, which the ISP said could help their fibre optic network to reach 10,000 premises via 25 networks by the end of 2014 (here). But the new “medium-term” plan could eventually push the service out to 200,000 premises (note: this is based on a total potential capital of £180m).

Some £5m of that £7.75m came from Neil Woodford’s new CF Woodford Equity Income Fund (i.e. Gigaclears first institutional investor) and unsurprisingly Woodford, with help from Oriel Securities and the company’s financial adviser Cameron Barney LLP, appears to be backing the move towards an AIM listing. Gigaclear’s CEO, Matthew Hare, certainly sees plenty of potential for growth and predicts that around 1.5 million UK premises could be suitable for its roll-out.

The ISP adopts a demand-led approach, which means they don’t build anything until enough local people in any given area have given their support to the project. Apparently this provides Gigaclear with an immediate day-one project return of around 10%, which grows as more homes sign-up (note: current penetration by community stands at 26% to 65%, with customer losses of less than 1%). At the last count some 400 communities had expressed an interest in Gigaclear deploying to their areas.

Matthew Hare said:

“Fast broadband and its associated benefits are enjoyed by many households in Britain’s towns and cities. At the same time, however, there are a significant number of households in rural communities that are effectively cut off from the broadband revolution. Our opportunity lies in bridging that divide, building ultrafast, pure fibre networks for rural communities that can not only rival urban speeds but can often beat them, hands down.

Gigaclear is well positioned to take advantage of the increasing trend for faster broadband to be made available to rural communities and there is no stronger indicator of this than the fact that over 400 UK communities have approached us directly for our service. The Group’s proposed Issues and Admission to AIM will enable us to more quickly roll-out new networks and places us in a very strong position to deliver on our plan to serve up to 200,000 homes over the coming years.”

At present there’s a lot of interest in true fibre optic broadband providers, with CityFibre also being successful in raising tens of millions from a similar AIM listing (here) and they’re now hoping to reach 1 million homes, businesses and public sector sites by 2016 via 20 so-called “second tier” UK cities (e.g. Coventry, Bournemouth, York, Peterborough etc.). On the other hand it’s not uncommon for businesses to over-play their aspirations when arriving on the LSE for the first time, although actually scaling-up to reach such heights as part of a viable target often takes time.

Meanwhile the Government’s national Broadband Delivery UK (BDUK) programme aims to make slower fixed-line “superfast broadband” speeds of 24Mbps+ available to 95% of the UK by 2017 and they’re already investigating how the final 5% gap can be closed. Like it or not local authorities that are involved in the BDUK scheme have sometimes shown a willingness to shun existing NGA networks (Gigaclear already has some experience of this) and the potential is now there for increased conflict going forwards.

On the upside it’s wonderful to see competition like this stretching into areas that many previously thought to be economically unviable without public subsidy. It may take time but we’re starting to see some light at the end of a very long the tunnel, although for many the wait is still far from over.

In addition, Gigaclear’s LSE float also references the potential for “additional opportunities” to “extract greater value” from its network, such as by developing new over-the-top (OTT) service marketing partnerships (like the one they have for a VoIP service with Vonage), providing connectivity to mobile base stations, offering enhanced mobile and 4G signal to rural homes, making it “attractive customer base available to other counterparties” and “becoming a preferred provider in more areas through county Open Market Reviews” (i.e. the hope of winning more public funds from state-aid supported projects).