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Cityfibre Buy FibreNation and Set 8 Million UK FTTH Homes Goal

Tuesday, January 21st, 2020 (8:07 am) - Score 5,476

UK ISP TalkTalk has today confirmed that their wholesale full fibre (FTTH) broadband network sibling – FibreNation – has been sold to the Goldman Sachs backed Cityfibre for £200m cash. In response Cityfibre has increased their fibre optic roll-out plan from 5 million UK premises by 2025 to 8 million.

Just to recap. FibreNation is the open access wholesale network sibling of TalkTalk, which since its creation last year has held a long-term aspiration of covering 3 million premises across the United Kingdom with a 1Gbps Fibre-to-the-Home (FTTH) broadband network.

NOTE: FibreNation has so far been focused upon the Yorkshire region, where they’ve already invested £60m.

Excluding their existing rollout to c.50,000 premises in York, FibreNation recently started its next deployment to 61,000 premises in Dewsbury (here) and they aimed to cover 100,000 premises across Harrogate, Knaresborough and Ripon in the future. However to reach the dizzy heights of 3 million premises they needed to raise around £1.5bn and so far that’s proven to be somewhat of an obstacle.

Initially TalkTalk appeared to have a backer for their big deployment strategy – Infracapital – but they pulled out at the end of 2018 due to a disagreement over the value of the FTTP network and there were concerns that other investors could potentially run into a similar obstacle.

Since then TalkTalk’s sibling has attracted some interest from possible investors (here) and there were also rumours of a potential sale to Cityfibre (here), at least until the Labour Party pledged to deliver a free full fibre network to all and thus nearly scuppered the deal (i.e. it threatened to destroy the current commercial ISP market, causing private investors to pause).

Nevertheless Cityfibre has now reached an agreement to buy the business and as part of that they intent to add FibreNation’s ambition for 3 million FTTH premises to their own roll-out strategy, which is currently in the process of investing £2.5bn to cover 1 million premises across the United Kingdom by the end of 2021 (Phase One) and then 5 million by the end of 2025 via 60 UK cities and towns (here).

On the flip side TalkTalk can reduce its debt pile and has agreed to join Vodafone as a long-term retail ISP partner on Cityfibre’s full fibre network. We should point out that in the areas not served by FibreNation, TalkTalk still intends to harness FTTP services from Openreach (BT) and potentially other suppliers (here).

Tristia Harrison, CEO of TalkTalk, said:

“We are pleased to announce today’s agreement with CityFibre, which is good news for TalkTalk, and good news for Britain and its full fibre roll-out ambition. Our investment over the last five years and the excellent work delivered by the FibreNation team, combined with CityFibre’s well- established platform, will support wide-geographic reach of full fibre and further drive competition in the market.

The sale of FibreNation to CityFibre, in combination with a competitive wholesale agreement, enables us to continue our strategy to accelerate TalkTalk’s fibre growth for our residential and business customers, thereby delivering a superior customer experience at an affordable price.”

Greg Mesch, Chief Executive of CityFibre, said:

“Digital connectivity has the power to transform our country into a nation of smart, connected towns and cities, boosting and levelling up our economy.

Today’s announcement establishes CityFibre as the UK’s third national digital infrastructure platform allowing millions more consumers and businesses to benefit from access to faster, more reliable services.

The UK is a service-based economy, and this runs best on full fibre. Ensuring national coverage is critical and this can only be achieved by driving infrastructure competition at scale. This deal demonstrates the appetite from industry to see it established.”

The addition of FibreNation’s roll-out plan to Cityfibre’s existing programme is an interesting one, not least since FibreNation’s long-term strategy was never fully funded and we’ve always assumed that with projects this big there would be some large areas of overbuild between the two plans. Unfortunately FibreNation has never released a long-term deployment plan and so it’s impossible to know for sure.

Otherwise today’s deal wouldn’t have been possible without Cityfibre’s existing ISP partner, Vodafone, agreeing to add some flexibility to their existing contract (softer exclusivity arrangements). At present Vodafone gets exclusive access to the new FTTH, at least until each city build completes, although they must in-turn deliver a certain level of take-up (not easy to do).

Under the new agreement with Cityfibre, Vodafone will offer their related Gigafast Broadband packages on a rolling, 12-month exclusive basis as homes become available for service in each of the 12 towns and cities covered in phase one of the deployment. Previously, the period of exclusivity was dependent on the total time taken to roll-out the network in each city.

NOTE: Vodafone recently moved to take Openreach’s FTTP service too, which without today’s deal might have looked awkward for Cityfibre (here).

In addition, Vodafone said they are backing a new trial in Salisbury in which Openreach (BT) will replace every copper-based telephone line within the catchment area with superior and more reliable optical fibre cables (here). Starting in the spring, Vodafone has agreed to migrate its customers in the area to Vodafone Gigafast Broadband (via Openreach’s FTTP) without charging an upfront connection fee.

Vodafone UK CEO, Nick Jeffery, said:

“Vodafone is in a unique position to drive forward full-fibre deployment in the UK. By offering our partners a ready market in the form of Vodafone Gigafast Broadband, we played an instrumental role in encouraging Openreach’s new wholesale service to build in additional places, and now we are enabling CityFibre to expand.

The only way the UK will achieve its digital ambition is through strong partnerships, and Vodafone is leading the way.”

Assuming Cityfibre can now deliver on their roll-out ambition then that may help the Government toward their goal of nationwide “gigabit-capable” coverage by the end of 2025, although most of their build will be urban and thus we expect lots of overbuild with Virgin Media and Openreach (i.e. not much of an overall improvement in gigabit coverage).

The deal suggests that Cityfibre’s investors will pledge an extra £1.5bn to help reach the new roll-out target of 8 million premises passed (£4bn total investment). As a result the company now also estimates that up to 7,000 construction jobs outside London will be created at the project’s peak (i.e. fibre engineers).

We should add that Sky Broadband were a wholesale ISP partner with FibreNation (i.e. the ‘Ultra Fibre Optic’ branding) and they remain there under the new deal, albeit limited to FibreNation’s old terms (a new deal may be required before Sky jump fully into bed with Cityfibre). Lest we forget that the new flexibility means that more ISPs will now be able to sell services via Cityfibre’s network, thanks to Vodafone agreeing to relax their terms.

Cityfibre has also struck an extensive wholesale agreement with TalkTalk for business services. TalkTalk and CityFibre will now begin systems integration in preparation for the future launch of TalkTalk’s full fibre services. As usual the sale is conditional upon shareholder approval (most have already given a commitment to support it) and completion is targeted to occur in March 2020.

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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 Twitter, , Facebook and Linkedin.
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24 Responses
  1. Avatar New_Londoner

    Inevitable given TalkTalk’s over-stretched balance sheet and very limited experience as a network operator. No doubt consolidation amongst the altnets will continue as sub-scale operators are absorbed into companies like CityFibre.

    • Avatar JmJohnson

      TalkTalks limited experience as a network operator ?
      Not that I’d recommend them but they have been an operator for 10+ years and provide wholesale access to companies like Daisy etc.

    • Avatar CarlT

      That should probably have been caveated as ‘access network operator’.

      They’ve operated a network but never owned one from the fibre in the ground to selling the service. Indeed most of their network assets now are, I believe, leased.

      As soon as they started independently building eyebrows were raised and no-one ever thought they would be able to progress it. They have now recovered some cash to keep the business running until someone else swoops in and buys the rest.

    • Avatar New_Londoner

      As Carl states above, I was referring to TalkTalk’s very limited experience in buildings and running an access network, not its experience as an ISP and wholesaler. They are very different business models with completely different capex/opex profiles and requiring people with very different skill sets. Experience in one doesn’t really translate across into the other.

    • Avatar FibreBubble

      TalkTalk’s balance sheet will look positively glorious compared to Cityfibre’s mountain of debt when the Fibre bubble bursts.

    • Avatar CarlT

      Liberty will I’m sure be delighted to acquire CityFibre in a distressed sale if it comes to it.

    • Avatar FibreBubble

      Liberty would certainly be in a distressed state themselves if they were to buy a direct in ground shallow tube shoddy build when they already have their own properly ducted kit in town.

    • Avatar CarlT

      The VM FTTP network is microducting.

      The Openreach overlay FTTP network where existing plant can’t be used is microducting.

      The CityFibre network is microducting.

      All of it should follow. NRSWA directions for depth and be no more shallow than normal CATV or telco cable.

      Maybe the combined expertise of these guys know more than a copper engineer about fibre network civils and the risks and rewards of such deployments?

  2. Avatar Matthew

    This was to be expected adds a missing link to CityFibres Home Network and Talktalk have been desperate to sell.

  3. Avatar NE555

    £200m for a network of 50K homes, plus some pie-in-the-sky plans? That makes £4K per home. TalkTalk must be chuffed.

  4. Avatar CJ

    It now seems inevitable that Sky will reach an agreement with Cityfibre too. It’s in the long-term interests of all the large ISP’s to see a credible wholesale competitor to Openreach get established over a large footprint, so that in future they can use their scale to play them off against each other for competitive wholesale terms.

    It also seems inevitable that Openreach will overbuild the vast majority of Cityfibre’s footprint sooner or later. The business case for investment must allow for that scenario.

    Unless they have published more details about future rollout areas, the 100 towns and cities listed in their 2018 report would be as good a guess as any. The vast majority of Cityfibre’s current rollout is on that list.

  5. Avatar ianh

    It is going to be interesting to see how Virgin and Openreach react to the aggressive pricing on cityfibre. I’m guessing here, but Vodafone must have been making a small profit or at worst breaking even at their current prices.

    It will take a long while thats for sure.

    • Avatar CJ

      With long-term interest rates at little more than zero, and negative real interest rates, Goldman’s should be able to find patient capital (not necessarily their own) willing to invest in infrastructure projects with a long payback.

  6. Avatar Matthew

    Maybe i’m a bit of idiot here but i’ve always been surprised Vodafone hasn’t put in serious investment into CityFibre to push FTTH they certainly have the money to do it and they have done it in the rest of there major markets of europe.

  7. Avatar FibreBubble

    TalkTalk bails the investment bubble with lot of cash for not many customers and a load of direct in ground, unprotected shallow tubes.

  8. Avatar FibreFred

    I said Talktalk wouldn’t take a fibre rollout any further , just like Sky.

  9. Avatar Eamonn R

    Hard to see this as nothing but good business by TalkTalk. Leveraging their considerable customer base, leaving the door open for other alt-nets and OR. Getting their consumer customers on to Fibre will have a positive impact across the board for them.

    Not really surprised they are just replicating the original deregulation model and bringing the customers whilst letting others lay the infrastructure.

    If sky jump on board, CF will find themselves in a good position to start gobbling some of the other alt nets up

    • Avatar FibreFred

      TalkTalk having been moaning to Ofcom for years that there is not enough fttp in the UK and said BT were not doing enough. So they stepped up and said they would do it.

      Now they’ve had a limited go at it, given up and sold it on.

    • Avatar FibreBubble

      To be fair, The money that CityFibre have paid per home passed for a cheapo direct in ground shallow tube build, every player would probably have cashed in.

    • Avatar Badem

      @FibreBubble
      You may think its cheapo but it does the job, looks to be reliant and allows a much faster installation.
      Most of the FTTP installations I have seen utilising MicroTrenching are all doing the same method, insert the tubing and cover it back up so can you enlighten me on how you think everyone else should be doing it?

      Its also hardly ‘shallow’ its at the depth set by industry (again everyone else is at this depth too for telecoms)

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