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Vodafone UK and Cityfibre Target Gigabit Broadband for 5 Million Premises

Thursday, Nov 9th, 2017 (7:19 am) - Score 7,660

In a major development Cityfibre and ISP Vodafone have this morning announced a new “long-term strategic partnership” that will bring Gigabit-capable “full fibre” (FTTH) broadband to “up to” 5 million homes and businesses across the United Kingdom by 2025, with the rollout starting by mid-2018.

The development follows Cityfibre’s announcement in July 2017 (here), which saw the company raise a further £201.8 million in private investment to help support the construction of a new 1Gbps Fibre-to-the-Home (FTTH/P) broadband network for 5 to 10 UK towns and cities. At the time no related cities or ISP partnerships were named.

At the same time Vodafone has been repeatedly hinting that they too have been exploring the potential for a joint investment on a “large-scale” FTTH/P build in the UK, although until today nearly all of the talk that surrounded this has centred on the possibility of a partnership with Openreach (here). Instead Vodafone appears to have gone in the other direction and teamed-up with Cityfibre.

The New Plan

The language used seems to differ between the press releases, although Cityfibre’s remarks offer a bit more clarity. At present Cityfibre already has a Gigabit capable FTTP network in parts of 42 cities and large towns across the UK (many were purchased from KCOM), which is expected to reach 50 by 2020, although these are mostly focused upon catering for specific businesses and public sector sites (except in York and Bournemouth).

Under the new agreement Cityfibre’s Phase One deployment – due to start during H1 2018 – will seek to reach a “minimum” of 1 million UK homes in 12 of their existing cities and towns, which according to Vodafone is expected to be “largely complete” in 2021. After that there’s the “potential to extend” this to up to 5 million homes (approximately 50 towns and cities and representing 20% of the current UK broadband market) by 2025.

Vodafone actually states a slightly more pessimistic top figure for the later phase by saying that “both parties have the right to extend the commercial terms of this agreement to expand coverage to a further four million homes and businesses by 2025.” We take this to mean that the final figure could be anything between 4-5 million premises.

Greg Mesch, CEO of CityFibre, said:

“This agreement will unlock the UK’s full fibre future and is a major step forward in delivering our vision for a Gigabit Britain. With this commitment from Vodafone, we have a partner with whom we can transform the digital capabilities of millions of homes and businesses and establish an unassailable wholesale infrastructure position across 20% of the UK broadband market.”

Nick Jeffery, Vodafone UK CEO, said:

“Vodafone is already playing the leading role in building the Gigabit Society across Europe by providing customers with high-speed, high-quality broadband. The UK has fallen far behind the rest of the world, trapped by the limited choice available on legacy networks. We look forward to working with CityFibre to build the Gigabit fibre network that the UK needs and deserves.”

Cityfibre expects the indicative cost to construct the FTTH/P network at maturity should be in the range of £350 to £480 per home passed (excluding the final customer connection charge), which would be roughly in keeping with their earlier Joint Venture FTTH deployment in York with TalkTalk and Sky Broadband.

The agreement is expected to “de-risks” Cityfibre’s rollout of FTTH/P with “minimum volume commitments for FTTH services from Vodafone in return for marketing exclusivity, city by city, for consumer grade FTTH services largely during the construction period.

Over 20 years the first phase of the agreement for 1 million homes is estimated by the operator to be worth over £500 million, which is based on the current build profile and includes revenues from connections and ancillary charges. This also assumes that a 20% minimum volume guarantee penetration rate is maintained throughout the subsequent 10 years.

CityFibre targets a revenue yield on the net capital expenditure for the FTTH/P network of 18%-22% at maturity (net of up-front fees paid by customers for fibre connections), being 5 to 7 years following construction. The first actual customer connections are expected to go live by the end of 2018.

Market Impacts

Vodafone said that today’s agreement is similar to the approach they’ve taken in other countries (e.g. Spain) and will provide them with “access to a superior product at a lower cost and with better service conditions than the regulated wholesale terms offered by the incumbent operator [Openreach] for access to its legacy copper telephone line broadband network.”

vodafone_ftth_cityfibre_deal_ceos
Left – Nick Jeffery, CEO Vodafone UK
Right – Greg Mesch, CEO CityFibre

The deal suggests that any prospect of a co-investment agreement with Openreach might well have gone out of the window and instead it will surely create some extra competition for both Openreach (BT) and Virgin Media, albeit only in urban areas (both now face more pressure to do more FTTP/H and less hybrid fibre FTTC etc.). Other urban ISPs, such as Hyperoptic and Community Fibre, may also need to stay on their toes.

On the other hand Vodafone’s requirement for market exclusivity will impact ISP choice and could create additional consumer confusion, although it’s an understandable desire given the high costs and commitment required in order to deliver such a network into an already aggressively competitive market. NOTE: Cityfibre’s existing ISP partners are more business orientated, while the exclusivity seems more residential focused.

The operators said that their deployment “would deliver 50% of the UK Government’s target for full fibre rollout to 10 million premises” (except the Gov’s target is set for the end of 2022). The rollout will also try to use the Gov’s new £400m Digital Infrastructure Investment Fund for altnets, which is match funded via private investment to deliver a pot of around £1bn to help support altnet ISPs. However the operators said they are “not dependent” on this as a source of funding.

After today it’s still possible that Vodafone could sign a co-investment deal with Openreach, but in our view this would be incredibly difficult because of the different models involved. The two different networks would also, from a consumer perspective, need to then adopt almost identical pricing in order to avoid confusion and that would require some big changes that Openreach may not be able to make.

In terms of pricing, we’d expect something similar to the affordability seen via Cityfibre’s deployment in York with Sky Broadband and TalkTalk. The latter offers a 1000Mbps service for just £21.70 per month, although that’s perhaps a bit too cheap and on Sky the same top tier is £48.99. So something between £30-£50 for the fastest tier would seem viable, although no doubt slower and cheaper options will exist.

UPDATE 9:45am

Openreach has given their response.

An Openreach Spokesperson said:

“We welcome this news and the competition. As we’ve said consistently – investing in more Fibre-to-the-Premises technology across the UK will need commitment from the whole industry.

For our part, we’ve invested more than £11bn over the last decade to upgrade Britain’s digital infrastructure – helping it to become the leading digital economy in the G20.

We hope this plan to reach one million front doors by 2021 can complement our own programme of upgrading two million premises, which is already well under way. We have also been consulting our customers on an ambition to reach 10 million homes and businesses with FTTP by the mid-2020s, and we’ll give an update on that process before the end of this year.”

UPDATE 11:46am

The Government has also sent in their response.

Matt Hancock, UK Minister For Digital, said:

“Full fibre is the future of cutting edge connectivity. We are investing more than £1bn to boost the roll-out of gigabit-speeds through full fibre and 5G to as many homes and businesses as possible.

We warmly welcome this new partnership between CityFibre and Vodafone as an important step to drive investment and help build a full fibre Britain. Reaching an additional five million premises by the middle of the next decade would be a significant contribution to connecting modern Britain and meeting our manifesto commitments.”

UPDATE 3:37pm

A couple more comments, this time from some of Cityfibre’s existing partner ISPs.

Mark Cowgil, Co-founder & Director of Exa Networks, said:

“As launch partners of CityFibre in multiple regions nationwide to deliver dark fibre to businesses, we are delighted to see that they are progressing the roll out of FTTP to the residential market with the announced Vodafone partnership.

In business we have seen the benefits of multi-gigabit technology and the revolutionary workflows it enables, yet, residential Internet provision has been lagging behind for some time. With average downloads for UK homes being just 36.2Mbps and uploads being a woeful 4.3Mbps it can often be a barrier to flexible working or an annoyance to an average family who are now more online, with television and music streaming services, gaming and generally spending more time ‘in the cloud’ often maxing out a households bandwidth.

The residential roll out will also generate a larger duct network, passing more businesses and schools who then can take advantage of Exa’s DarkLight service.”

Jonathan Burrows, CEO of Ask4, added:

ASK4 uses CityFibre as a wholesale connectivity provider, as do many ISPs, telcos., local authorities and others. We do not use CityFibre to connect individual houses. We welcome today’s significant partnership announcement between CityFibre and Vodafone, as any commitment to invest in FTTH infrastructure increases customer choice and improves service speed and quality.

Furthermore, the significant network build (c. 1m premises in first phase) will expand CityFibre’s network which may also benefit its wholesale partners through increased capacity and reach to non-residential buildings.”

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Mark-Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook and .
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