Netomnia Adds Two Kent Towns to 2023 UK Full Fibre Rollout

dee.jay says:

They won’t if it’s not easy/cheap.

John says:

Netomnia does not need to get above 30% takeup to payback the cost of build unlike some alts, because their build is much more efficient

Having 2 competitors is healthy. In parts of London there’s OR, VM, HO and CF and while takeup isn’t the best, the business case still works because build costs are cheaper due to the density

There are not many empty towns left

Andrew G says:

John: “Netomnia does not need to get above 30% takeup to payback the cost of build unlike some alts, because their build is much more efficient”

OK, and they’re a wholesaler so can sell via other ISPs, but there’s still the problem of how they’ll get a 30% takeup when the speed-enthusiasts already have a range of ISPs offering near enough the same high speeds over OR. People in Deal already have a choice of 900 Mbps from BT, Talktalk, Vodafone, Sky, Zen, Shell, all established brands with big marketing budgets – are they going to tell their existing customers that they need a new line installed, because the ISP wishes to save a few shekels swapping to a new network run by a company too new to even have published proper accounts, and likely haemorrhaging cash? Even if using PIA, can Netomnia undercut Openreach and make a return on capital? Netomnia’s XGS-PON may be technically superior to OR GPON, but that’s of little relevance to anyone other than techno-anoraks like us.

I’m all for the plucky upstart but I still can’t see this working out (overlooking that £418m investment doesn’t seem like plucky upstart territory).

Andrew G says:

Well maybe, but building infrastructure even on a minimum cost basis is a cash hungry business, and the patience of private equity investors limited. With a good plan and long term payback, if you don’t have the cash you still go bust.

Take Netomnia and ask what is the business model? More specifically where’s their differentiated proposition in these two towns or other gigabit overbuild areas, of which there are many? They state they want to reach 1m premises (and they’re on course for that) they’ve got £418m of equity and £230m of debt, assume your 20% capture rate, and that means £3,250 capex per customer. That’s not economically sustainable in a market where other providers exist. You might counter that Netomnia investors are smart and rich, and wouldn’t put the fat end of half a billion quid into something that’s not viable. Unfortunately the overwhelming evidence of history is that every few years there’s a new mania to burn investors’ money.

Andrew G says:

Problem is Phillip, that it’s not as simple as the pure capital cost and a simple repayment time. There’s all the complexities of operating costs, non-operating costs, interest, depreciation, accrued losses – and if there’s anything left over you lose 20-25% corporation tax. I’ve worked many years in the world of regulated infrastructure, managed programmes of hundreds of millions of pounds, so I’m confident that I know the maths on this. As an alternatively to my practical experience, you could ask somebody who’s written a master’s dissertation on measuring financial performance. But that’ll be me too. My dissertation is gathering dust in the library of the University of Warwick if you wish to go and consult it.

The altnet market is a monstrous bubble. Most of the companies involved are making huge losses, they’re never going to make a return on the capital they employ, and the future is consolidation, huge write-downs, and (unless the clowns at Ofcom get their act together) unplanned insolvencies and customers losing service. Maybe Netomnia come out on top in the maelstrom, but if you can predict the winners in this turbid market, you should perhaps choose winning lottery numbers or put a big bet on the outsider in the 4:30 at Chepstow.