Macquarie Allegedly Mulls Sale or Merger of Broadband ISP KCOM
Australian investment group Macquarie has reportedly placed broadband ISP and full fibre network operator KCOM, which is the dominant operator in Hull and is also expanding further out into East Yorkshire and Lincolnshire in England, under strategic review. The move could potentially result in a sale or merger of the business.
In case anybody has forgotten. Macquarie Infrastructure (MIRA / MEIF 6 Fibre), following a fierce bidding war with the Universities Superannuation Scheme (USS), finalised their £627m acquisition of Hull and East Riding’s incumbent broadband operator KCOM in August 2019 (here).
At the time, KCOM had only just finished its £85m “Lightstream” project (here), which made their gigabit speed Fibre-to-the-Premises (FTTP) broadband network available to nearly all of their addressable network area (195,000 premises). But in 2020 they began a large £100m network expansion into more competitive areas (here), which was followed in 2022 by a second £100m fibre expansion and copper upgrade programme (here).
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The latest development, according to the Telegraph (credits to Carl for spotting), is that Macquarie has allegedly appointed advisory-focused investment bank PJT Partners to conduct a strategic review of KCOM’s business. The speculation is that this move could potentially result in a sale or merger of the business with a rival operator, although such a proposition seems likely to be much more challenging this time around.
The original deal came at a time of low interest rates and easier access to funding, while the situation today is the opposite and the market (infrastructure level) is also much more competitive than in 2019. Not to mention that KCOM has since sold off some parts of its business (here) and is coming under pressure to grant rivals more access to run new fibre via their network (here). Suffice to say that KCOM may struggle to attract the same sort of money as they did five years ago.
On the other hand, growing network operators like CityFibre and nexfibre (Virgin Media O2) are currently looking to help boost their reach through consolidation and neither have any significant overbuild with KCOM. On top of that, KCOM delivered its first pre-tax profit in the year to the end of March 2023 (current earnings are said to be around £50m), which is something that a lot of alternative networks are still some distance from achieving.
In addition, the investment environment may soon start to improve once interest rates drop, although it will take time to move away from the current peaks. In any case, we probably won’t hear much more on this until later in the year, after the completion of the strategic review.
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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 X (Twitter), Mastodon, Facebook and Linkedin.
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Openreach won’t buy them – it’d mean BT actually spending money.
Yeah, funny you are
Completion rules make BT buying them unlikely
Given BT are the incumbent everywhere bar Hull I can’t see competition being an issue. They’d probably want to dispose of the KCom build in areas BT are incumbent anyway, not that it really reduces competition significantly given the number of other operators. Beyond that no real issue.
Historically, BT/OR have generally stayed away from acquiring rival infrastructure providers, unless there really is no alternative (e.g. Digital Region). Not to mention some complex history between BT and KCOM in Hull. So my money would be on them not getting ‘seriously’ involved in bidding (though they may still express an interest for interests sake), but you never know. For now, CityFibre and nexibre seem like the more obvious choices.
the same argument applies to KCOM as applies to the altnets, in regard to an Openreach bailout – they’ve built their network to a different standard, using different vendors, and there would be considerable integration and ongoing maintenance costs.
I’d imagine BT are quite happy covering the rest of the country. If they really wanted to be a challenger in Hull, they could.
Why not just merge with Voneus?
KCOM appear to have been offloading some of their IPv4 blocks as well
Likely makes the profit look good in prep for sale if they’re not using them 🙂
Have they had redundancies recently? I can’t find anything but usually PE would do things like prevent hiring, rather than redundancies if they’re lining up a sale as its far less obvious it’s happening.
Internally, this was a worst kept secret since min January. There were at least two waves of redundancies / people not getting FTC extensions since then. Fibre expansion was put on hold, capital expenditure cut to bare minimum. Even critical end of life stuff isn’t getting done. So the company made very little effort to try and hide it.
KCOM has recently hired a lot of people from TalkTalk, and trying to be best buddies with the Execs there. Just sayin’.
Or Quickline as a merger.. perhaps then you get a lot of the ex-KCOm staff back 🙂 including the MD.
TalkTalk can’t afford KCom and it would be a really weird move for them to get involved. KCom own infrastructure, TalkTalk’s only real asset is their customer base. TalkTalk briefly tried building an access network and quickly sold it.
Not impossible of course, but TalkTalk would bring no value to KCom and KCom none to TalkTalk.
KCom have, what, about 170,000 premises where they are the incumbent and regulated alongside upwards of 130,000 where they are an alternative network. Their uptake in the 170,000 premises is insanely high due to cost and issues with competing with them so that’s decent, no idea how they are doing in the 130,000+ outside there but those are going to have to be priced pretty keenly: Nexfibre could build that in a couple of months at current pace. The 170,000 where they basically own the market are valuable but come with a lot of complications given the regulation.
The regulation is a major, major stumbling block to an altnet acquiring them. Given part of the reason Nexfibre exists is to try and avoid VMO2 being regulated more strongly Nexfibre acquiring KCom seems a stretch. CityFibre don’t have the resources so would have to use shares to acquire and would they want the regulatory burden either?
Haven’t a clue. Not sure anyone currently in the altnet market or BT Group would want them, might end up in a pension or investment fund again once Macquarie have finished the asset stripping and efficiency drives to increase perceived value.
My error, KCom are incumbent in about 190,000 premises with 110,000+ where they are the altnet.
Kcom show a profit from previous years although this year many customers are negotiating discounts and locking into new contracts for two years as part of the discount deal.
Discounts are often £25 per month/half price.
There is often a long call queue for customer services/retentions as so many are calling.
Kcom revenue must be dropping as more customers phone to negotiate discounts or cancel and move to new competitors.
In about two years these new discounted contracts will have ended and MS3 and Connexin will have completed build so customers will have a good choice.
Installation of competitors poles has been delayed in some areas while negotiations take place which gives Kcom more time to get people locked into new Kcom contracts.
Interesting times ahead for the residents of Hull and East Yorkshire.
Lets hope whoever buys Kcom has more competitive pricing and ideally is a wholesale provider.