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UPDATE CityFibre Raise £180m Financing and Gobble KCOM’s UK Fibre Network

Monday, December 14th, 2015 (7:52 am) - Score 2,365

Fibre optic developer Cityfibre has today announced that they’ve found financing of £180m to help expand and commercialise their national UK Fibre-to-the-Premises (FTTP) based broadband / Ethernet network and one of their first moves is to gobble KCOM Group’s UK network assets for £90m.

At present Cityfibre owns, builds and manages a number of major city-focused fibre optic networks across the United Kingdom, most of which are intended to cater for businesses and the public sector. Some of their biggest projects exist in cities like Peterborough, Coventry, Aberdeen, Edinburgh and Glasgow etc. Elsewhere their networks in York and Bournemouth are also setup to cater for residential users.

Meanwhile the operator has been busy building a new 62km long fibre optic network in Hull (East Yorkshire, England), which is part of a major long-term deal to supply capacity for local mobile operators EE and Three UK (here); as well as to extend their own reach of course. But Hull itself is still dominated by the local incumbent ISP KC, which is owned by the KCOM Group.

In that sense it’s interesting to note that Cityfibre has today announced a £90 million acquisition of KCOM’s national UK fibre optic and cable duct assets, which were only recently put up for sale at the end of last month (here); this obviously excludes KCOM’s primary infrastructure in Hull and East Yorkshire.

The assets that KCOM reclassified as being held for sale relate to the ducts and fibre that make up the group’s national network, which is a figure of eight network that goes through 25 towns and cities across the United Kingdom. Needless to say that this is a substantial piece of infrastructure and one that will immediately increase the number of CityFibre’s metro footprints to 36 and enable them to target a total of 50 cities by 2020, “reaching 20% of the UK market“. Now that’s a seriously big development.

Greg Mesch, CityFibre CEO, said:

“This is the most significant event to take place in the UK’s digital infrastructure market in a decade. The UK now has a secure independent infrastructure alternative. Cities, service providers, mobile operators and investors have boldly embraced a new model of future-proof infrastructure provision and paved the way for its acceleration across the country.

With our enlarged footprint and strong pipeline of cities demanding better infrastructure, we will continue to grow, offering existing and new partners an ever increasing opportunity to capitalise on a pure fibre future.”

Cityfibre claims that this announcement makes them the “largest wholesale infrastructure provider after BT” and thus a major challenger to BTOpenreach. Indeed the new network represents physical infrastructure assets that comprise 1,100km of duct and fibre in 24 UK cities, as well as 1,100km of national long distance network that connects these cities to major data-centres across the UK and to Internet peering points in London.

cityfibre_kcom_map

Obviously that £90m needs to come from somewhere and as such it’s being supported by new financing that comprises £80 million of new equity and £100 million in debt facilities. Apparently both the financing and acquisition transactions are scheduled to complete in mid-January 2016.

The development is financially tedious, but crucially it gives Cityfibre “meaningful scale” in the market and that’s something they can sell to businesses, Mobile Network Operators (MNO) and of course also Sky Broadband and TalkTalk; assuming the last two ever get around to deploying a 1000Mbps Fibre-to-the-Home (FTTH) network as more than a mere experiment in York.

Last week a report from Point Topic stated that Gigabit fibre optic networks were attracting a lot of investment in the UK (here) and this is further evidence of that. On the other hand Cityfibre’s latest 2015 H1 results only showed a gross profit of £2.3m and that’s up from just £1m in 2014, which suggests a long payback period for today’s deal.

UPDATE 9:44am

Added a map that shows Cityfibre’s network before and after today’s news. Also here are a few extra statistics.

What will CityFibre’s new network statistics be post-acquisition?

* 3200km fibre national footprint
* 36 major metro footprints
* 7,000 cell sites addressable
* 24,500 public sector sites addressable
* 245,000 businesses addressable
* 3.5m homes addressable
* Footprint post acquisition is 11x greater than at CityFibre’s IPO
* Presence in 23 of the top 30 cities outside London

Take note that “addressable” is not the same as “premises passed“. You could say that Openreach’s Fibre-on-Demand (FoD) product is able to reach millions of homes via a similar description, but this drops to a tiny number when you use “premises / homes passed” because the latter actually requires the network to effectively be waiting almost right outside your property (i.e. doesn’t need substantial new work to connect your property).

UPDATE 3:48pm

CityFibre informs us that they’ve so far raised around a total of £250m for investment into the UK’s digital infrastructure, which is about half way to the £500m that we heard first being talked about in 2011 (here).

UPDATE 18th Jan 2016

As expected Cityfibre has today completed their £90m KCOM deal and the £180m funding package. Elsewhere they’ve also started to commercialise a fibre optic network in Bristol, which use to be owned by KCOM (here).

Greg Mesch, CEO of CityFibre, said:

This is a momentous day for UK broadband infrastructure, which has seen no meaningful alternative investment for well over a decade. By combining the unique and highly attractive KCOM network assets with our own, we are well-positioned to tap into future growth in the rapidly evolving UK fibre market.

With a significant presence in 36 cities, 21 of which are completely new markets for us, we are now established as a credible alternative to BT Openreach, and the largest independent provider of wholesale fibre infrastructure on a national basis.

Moreover, the £180 million funding package we have closed equips us to push hard on commercialising the acquired assets, which we have already begun to do with our first new service provider relationship on the acquired Bristol network, as announced on 14 January 2016. It also funds our continued organic growth trajectory towards our medium term goal of dense network presence in 50 towns and cities, with an estimated addressable footprint of 35,000 public sector sites, 10,000 mobile cell sites, 350,000 businesses, and 5 million homes.

This is a transformational acquisition which elevates us to a much more significant place in the UK network infrastructure arena and we look forward to continuing to prove out our strategy across a vastly expanded footprint.”

We suspect the “no meaningful alternative investment” remark might annoy the likes of Gigaclear, Hyperoptic and Virgin Media etc. that have put huge private investments of their own into better broadband.

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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 Twitter, , Facebook and Linkedin.
Leave a Comment
5 Responses
  1. Johnny Rotton says:

    KCOM group released just before the agreement that the Net book Value of the Assets is only £41.8 Million and the deal does not include network switching, transmission, control and application elements for which the ownership will be retained by KCOM Group.
    CFH will only own ducts, sub-ducts, chambers, cables and cable joints, ODFs and patch cords.
    Also according to the CFH’s admission document, CFH will be paying interest at a rate of 10% over the LIBOR rate on the finance facilities.

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