Government Orders LetterOne to Sell UK Full Fibre ISP Upp over Russia Links

The UK Government’s Secretary of State for Business, Grant Shapps, has ordered investment company LetterOne (L1T FM Holdings UK) to sell its entire stake in alternative broadband network provider Upp (formerly Fibre Me) in order to “prevent, remedy, or mitigate the risk to national security“.

Upp is currently investing £1bn (£300m in equity and the rest as debt) to build a new Fibre-to-the-Premises (FTTP) network to cover 1 million premises in the East of England by 2025 (here). The build has already begun in several towns across Norfolk and Lincolnshire (e.g. Diss, Downham Market and Thetford) and they previously aimed to reach 50 towns (c.300,000 homes) in the two counties by the end of 2022.

However, the involvement of LetterOne did initially raise the odd concern last year, particularly during the build-up and subsequent invasion of Ukraine. Last year the Conservative MP, Bob Seely, warned of security concerns (here) after it was noted that LetterOne was co-founded by Russian billionaires (oligarchs) Mikhail Fridman and Petr Aven. Several other MPs have also voiced concerns.

In response, LetterOne reportedly froze out Mikhail Fridman and Petr Aven earlier this year (here and here), not least by removing their access to the building, wiping their profiles from the website and forbidding them from talking to employees. In addition, German Khan, Alexei Kuzmichev, and Andrei Kosogov all stepped down from their positions as it was deemed “the right thing to do“. Many of these individuals have been sanctioned by the EU or UK.

We should point out that Mikhail Fridman, who previously called the sanctions against him both “groundless and unfair“, has been cautiously critical of the war. The UK-based oligarch also made the point that it can be dangerous to be too outspoken against Putin: “Hundreds of thousands of people are working for us in Russia. And you know, I don’t want to make any comments which potentially could increase their risk” (here).

Despite all this, Grants Shapps has today ordered LetterOne to sell Upp over national security concerns.

Government’s Security Notice (Upp and L1)

On 21 January 2021 the Acquirer (L1T FM Holdings UK Ltd.) purchased a 100% stake in Upp, previously named Fibre Me Limited.

This acquisition constitutes a trigger event under section 8(2)(c) of the Act.

The Secretary of State considers that a risk to national security relates to:

i. the ownership of Upp Corporation Ltd. by the ultimate beneficial owners of LetterOne Core Investments S.à r.l (parent company of L1T FM Holdings UK Ltd.) and Upp’s expanding full fibre broadband network.

The order has the effect of requiring:

i. LetterOne to sell 100% of Upp within a specified period and by following a specified process; and

ii. Upp to complete a security audit of the Upp network prior to sale.

The Secretary of State considers that the final order and its provisions are necessary and proportionate to prevent, remedy, or mitigate the risk to national security.

In a brief statement, L1 said they “believe that L1 ownership of Upp is not a threat to national security in any way” and pointed out that “L1 is not sanctioned and has taken fast, decisive action to put in place strong measures to distance L1 from its sanctioned shareholders. They have no role in L1, no access to premises, infrastructure, people and funds or benefits of any description.”

The decision risks causing disruption to Upp’s future investment and build plans, particularly since it comes just as the operator was starting to ramp-up their rollout. Furthermore, we don’t yet know how close they’ve got to their original and highly optimistic target of reaching 300,000 premises by the end of 2022, which makes it difficult to estimate what sort of value they (assets) might attract in a sale.

We’ve long spoken about our expectation for a wave of consolidation to hit the UK’s full fibre market over the coming years, but this is clearly something different. Upp may attract a significantly lower value if it comes without the backing of a major investor like LetterOne.