CityFibre Target 20 UK Cities and 1Million Premises for 1Gb Broadband by 2016

Fibre optic network developer CityFibre appears to have set itself the difficult task of rolling out their 1000Mbps capable Fibre-to-the-Premises (FTTP/H/T) network to reach 1 million homes, businesses and public sector sites by 2016, which will take place in 20 cities across the United Kingdom.

CityFibre has in fact held a similar goal ever since they first announced plans to invest around £500m (most of this has yet to be raised) into their roll-out of fibre optic networks “throughout the UK’s second tier cities” in late 2011 (here), which was followed in May 2012 by the signing of Fujtisu UK to help construct the new network (here). But at the time no clear timescale for achieving this goal was ever set.

Since then CityFibre has been busy rolling out core fibre optic networks, largely for use by the public sector and business customers, across locations including Bournemouth, York, Peterborough and Coventry, with more to follow (not forgetting the many other networks that they merely manage). But a lot has changed since the start of 2014, not least via the creation of a Joint Venture with Sky Broadband and TalkTalk to make 1Gbps broadband available to homes across York and in two further cities (here).

However the operators ambitious new target of reaching 1 million premises by 2016 (we assume the end of 2016) will require significantly more investment than currently exists and that’s where their recent stock market launch could help. At the very start of this year CityFibre successfully raised approximately £16.5m after confirming their admission to and trading of its Ordinary Shares on the AIM market of the London Stock Exchange (here).

But CityFibre has now successfully raised another £30 million (approved by their board today) through a secondary placing of shares that is said to have been oversubscribed (i.e. there were more potential buyers than issued shares). It’s important to note that all of this overlooks any separate but related investment coming from other avenues, such as councils and ISPs like Sky Broadband and TalkTalk (the latter two will be making a significant contribution in York etc.).

Greg Mesch, CEO of CityFibre, said:

“We are delighted to have a strong capital base behind us and we can now put our foot firmly on the pedal in our roll-out of Gigabit Cities. All the evidence points to the social and economic advantages enjoyed by cities with a future-proofed digital infrastructure and we welcome the increased interest from cities and their service providers in our shared fibre infrastructure solution.

As a nation we are at a critical moment in our economic evolution, faced with a choice between the technology of the past and the fibre promise of the future. The internet-enabled economy is responsible for a higher level of GDP contribution in the UK than in any G-20 country, but broadband infrastructure lags behind that of many others that have been faster to invest in pure fibre infrastructure.

Amongst those early adopters, in almost every case, the key catalyst was the presence in the market of a new source of capital and vision. With today’s funding completion, CityFibre is well positioned to occupy this role in the UK.”

ISPreview.co.uk took a quick glance at CityFibre’s company report, which shows that this latest fundraising effort occurred at the end of May 2014 and involved the placing of 42,857,142 new Ordinary Shares, at a price of 70p per new Ordinary Share, raising approximately £30m as stated above (before expenses).

The same report also states that CityFibre’s Directors “believe there are at least 100 cities in the UK which are potential targets” for their fibre optic deployment, which highlights a much longer term aspiration rather than a specific target.

CityFibre’s Current Trading Prospects (Company Report)

The Company today announced the pro forma preliminary results for CityFibre Holdings Limited for the 12 month period ended 31 December 2013. Revenue increased by 9.7 per cent., to £1.9 million compared to £1.7 million for the year ended 31 December 2012. Gross profit increased 24.0 per cent., to £1.5 million (£1.2 million: 31 December 2012) and the EBITDA loss of £3.0 million was a reduction of 26.8% over the prior 12 month period.

Over the past 12 months, the Group has continued to secure new infrastructure lease contracts in both the public sector and business markets as highlighted by the successful contract awards in Peterborough and, more recently, the acquisition in Coventry. These, coupled with the recent announcement of the JV agreement with BSkyB and TalkTalk, provide further evidence of the growth in demand for CityFibre’s expertise in the field of transformational fibre infrastructure projects.

Current trading continues in line with our expectations and our pipeline continues to grow beyond that originally articulated during our IPO and the progress of our current infrastructure projects is gathering renewed momentum. The Board remains confident in the medium term prospects for the Group.

So can they achieve the target of 1 million premises passed by 2016? The focus on urban areas, combined with the new funding and expectations for future investment (e.g. via Sky and TT), certainly make it a possibility but it’ll be tight. By way of a comparison, Hyperoptic are using around £50m of investment to reach roughly 500,000 premises in mostly urban areas by 2018 (here), but they’re arguably a smaller operation.

Admittedly CityFibre, Sky and TT still need to prove that their model in York can attract enough customers in order to be sustainable, although there’s now enough investment to carry all of these initial ambitions forward to realisation. Naturally BT and Virgin Media, which share much of the same territory, probably won’t be too worried just yet but at the same time they’ll want to keep a close eye on these developments.. as will Hyperoptic.

Meanwhile the branding and launch date of the related retail broadband services from TalkTalk and Sky Broadband in York have not been announced, while the next two cities in their JV plan are due to be unveiled before the end of this year. Readers looking to learn more about this project should check out our exclusive interview with CityFibre’s Director of Strategy and Policy, Mark Collins, which went online yesterday (here).

NOTE: CityFibre will shortly be opening an application process for the next 10 cities to be prioritised for roll-out.