Altnet UK Broadband ISP Zzoomm to Cease New FTTP Build from End of Q2
Oxfordshire-based alternative broadband ISP Zzoomm, which recently revealed that their 2Gbps Fibre-to-the-Premises (FTTP) network had covered 200,000 premises (RFS) across 23 towns in England (here), has today reported their end of year results (Dec 2023) and confirmed that they’ll cease new building work from the end of this month.
The operator, which has thus far been fuelled by an equity investment of £100m from Oaktree Capital (here) and a £100m debt facility via an international banking consortium (here), has typically focused their roll-out on smaller towns in parts Berkshire, Oxfordshire, Herefordshire, Yorkshire, Staffordshire, Wiltshire and Cheshire.
However, much as we reported a few months ago, Zzoomm’s deployment recently suffered a slowdown and job cuts (here and here). At the time, the provider informed ISPreview that “new network construction is stopping”, although they didn’t give a precise date and added that some existing work would continue (mostly on a local case-by-case basis). Many other network operators have suffered similar issues, partly due to high interest rates and rising build costs.
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In that sense the publication of their latest 2023 Year End Results doesn’t add much to what we already knew, but it does provide a useful update on their progress, while also confirming that the “capital raising market remains extremely tight in the UK and the cost of capital available remains too high to generate equity returns.” Accordingly, Zzoomm states that the “focus now is on commercialising its network towards profitability” and “construction of new network is being wound down and is expected to cease by the end of Q2 2024” (i.e. this month).
Just to be clear, the revised focus is said to be having “no impact on the operation of the existing network or the ability to deliver service to new or existing customers“. Zzoomm added that they would continue to invest in commercialisation activities in marketing, sales, customer service and field service functions in order to help rapidly grow their take-up.
The Group expects to have a total of circa 202,000 properties RFS (Ready for Service) by the time the build stops.
Results Highlights
- Customer penetration rates accelerating across the network
- Average take-up increased to 12% for year to March 2024 (March 2023: 7%)
- Numerous geographies / towns now have over 30% market penetration (these are said to be now “profitable“)
- Current rate of customer take-up accelerated to 1% per month (2023: 0.9%)
- Properties ready for service and contracted customers rapidly growing, excluding large order book
- End December 2023, circa 189,000 properties (Dec-22: 94,000) ready for service with circa 20,200 (Dec-22: 6,300 customers) contracted
- End May 2024, over 200,000 properties (May-23: 140,000) ready for service and over 27,000 (May-23: 12,000) customers contracted
- Revenue increased to £3.6m (2022: £1.2m) as recurring subscription revenue momentum builds
- Operating loss £21.0m (2022: loss £12.3m) reflecting continued investment in growing the network and infrastructure
- At the end of 2023 a total of £148.7m been spent on network build (2022: £95.3m).
- At the end of the year, the Group cash balance was £2.9m (31 Dec 22: £18.3m).
- Focus on commercialisation with current network construction completed by end of June 2024 – cost base materially reduced
The results also confirm that the number of employees supervising contractors and enabling the build has now dropped to zero, which compares with 233 at the last set of results. But Zzoomm does hold out some hope that “affordable capital” may become available again in the future, which they say “would enable the restart of new Full Fibre build.”
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Matthew Hare, CEO of Zzoomm, said:
“Our focus has always been on delivering an exceptional service to happy customers. We are now concentrating on profitably commercialising our outstanding network and brand position, as our current build phase closes, by bringing our brilliant Full Fibre capabilities to many more homes and businesses.
We are well positioned to make acquisitions in fragmented and competitive markets as we are growing faster, have a more highly valued brand and network and stronger commercial proposition than many of our peers. An enlarged group, based around our established operational and effectiveness and technical infrastructure, would benefit from the economies of scale.
New customers are taking up our high value offer at a market leading rates across all geographies. Our high customer satisfaction scores continue to improve, and we are seeing minimal churn, those that are leaving being primarily house movers.
With ARPU continuing to increase, we are now moving towards profitability. Those towns with over 30% market penetration are largely profitable already.”
Customers who take their residential service typically pay from £29.95 per month for an unlimited 150Mbps (symmetric speed) package on a 12-month term with an included router, which goes up to £54.95 (normally £64.95) if you want their top 2Gbps tier.
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, BlueSky, Threads.net and Linkedin.
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Zzoomm looking like it’s going to become a ripe target for a buy-out by Openreach, nexfibre, CityFibre or even Netomnia, if neither of them have any presence in the locations that are covered by Zzoomm’s network tbh. Will be intriguing to see what happened over H2 2024 with them
I can’t see Openreach jumping on the acquisition train, that’s just not their strategy, but the others are at least a possibility.
@Mark: I do agree its unlikely that Openreach would acquire the company, but we can’t obviously predict the future, either in the private sector or even by government regulation. But you’re likely right that one of the altnets are more likely to try and snap up Zzoomm if it expands their coverage without having to do much work beyond linking Zzoomm’s backhaul to their own.
Clive Selley has made it absolutely clear that Openreach is going to plough it’s own furrow. Trying to integrate another companies network that has been built to a different standard just wouldn’t be worth their time. Someone like CityFibre or Netomnia or even Nexfibre would be a much more likely buyer.
I left Zzoomm after 2 years, when the service works it’s great but if you have an issue CS is / was absolutely nightmare, failed callbacks and calls just ringing which then eventually get answered by their HQ switchboard.
Stopping new build is concerning but not surprising. Problem is in areas like mine (Sandhurst) I can’t see many wanting to swoop in and buy the network because we’ve already got Openreach FTTP, Trooli, Swish & most recently Virgin via nexfibre.
Zzooomm were the first to bring the area FTTP
5 networks covering the same area is ridiculous. I can’t see more than 3 networks in the same area ever being viable and that is probably only in the most densley populated urban areas, especially if Openreach and VMO2 are present – they are likely to grab the lion’s share before anyone else gets a look in.
Yep I agree. I’m in Crewe, Cheshire and we have Zzoomm, Openreach, Nexfibre, plus another called Full Fibre Limited. I remember someone else called VX Fibre as well. I crazy how many we have here for a small market town.
From Zzoomming to Bbrraakking 🙂
£3,800 of sent per connected customer? Ouch.
It’s grim. If you slice the numbers another way, assume they double their customer count to around 44k (no mean feat), then the build cost per connected customer is around £3,400. Just to get a return of 9% that equates to £25 a month per customer just to cover capital, ignoring all the other costs of running the business. As with many other altnets, I simply can’t see them surviving without huge writeoffs of the build costs.
Debt, not sent. Autocorrect
So, despite “numerous” areas having “profitable” market share, they’re still hemorrhaging cash at an alarming rate. No wonder they’ve slashed the build program, with losses of £21M a year and cash reserves of £2.9M, they would have run out of money in six weeks. It’s a good job they offer 12 months contracts, they’ll either be bought out or bust in not much longer than that.
Hence a further injection of money from Oaktree (at 12.5%!).
Zzoomm on life support unfortunately.
12.5% is a bargain, the cheapest funding our local altnet was offered in Q4 2023 was 22%. They rapidly stopped all new build, only offering infill now.
@Sean: They (Oaktree) do have a slight vested interest in not hammering Zzoomm too much with onerous interest…given they are in for £67m of preference shares ranking behind the £100m of bank debt!
25% is shocking. Who was that?
Dun, dun, dun, another one bites the dust.
These guys are going to run out of cash in months if not weeks.
IF Oaktree are willing to cover Zzoomm’s cash needs for the next 2 years (c£25m) they’ll have the pleasure of also repaying the £100m owed to the banks!
For their troubles they’ll own a network of 202k premises that cost c£235m to build worth a third/quarter of that, and an ISP with maybe 50k customers just at best EBITDA breakeven.
Most of the altnets will be in similar positions. Some huge haircuts coming.
Too many players in the market and the market is to fragmented. Another problem is the lack of standards. I cannot see how this company can continue to trade for much longer. Stopping the build out will slow the rate at which it burns through cash but that all. It seem unlikely any one will provide it with more funding. Maybe someone will take it over but with so many other companies in the area even that does not seem likely. The only real value is the customer base
We only have two networks here, Out of reach and ZZOOMM,
I see a few Zzoomm vans going around, so I presume they are getting customers.
They need to up their marketing and they need to supply a better router.
Openrerach lovers here, those who want all Alt networks to go under and have Out of reach doing the whole country.
Openreach will not take over Zzoomm, if they did them Zzoomm network would have to be downgraded to Openreach rubbish.
We will see what happens, I have said it before and i will say it again, if Zzoomm is taken over by some company I don’t like then I will go back to FTTC.
It is nice to have more competition, in this city we only have Zzoomm and out of reach. Building a network is always going to cost money, that is why Openreach only bother with the places that profitable and not in the sticks. the problem is and this is also true for Openreach as well, a lot of people are staying with FTTC and have no interest in changing to FTTP. The advantage Openreach have compared to alt networks is that they already have people on their FTTC network via different ISPs, so it is easier to talk them into changing to FTTP on their network than going to a different network.
openreach have a unfair advantage and always have had.
I have been happy with Zzoomm, sure they have had their problems when it was a new network, but over the last 9 months or so it has been fine, customer service could be better, but then, look at some of the larger ISPs like Talk Talk BT, EE, sky and their customer service is no better and at least it is not someone in another country.
We will see what happens.
For someone who droned on and on that they didn’t want FTTP, you sure have some strong opinions.
Same for me. Had it just over 2 years now. Started on 900. Now on 2000. Absolutely brilliant. We had some early issues when rollout was new and recently we had an outage due to some electrical contractors going through a main fibre. I can’t recommend it enough. Some say the router is cheap, I don’t use the Wi-Fi and don’t have issues. Plenty of installs going on in Cannock.
Yes Openreach do have an advantage being the incumbent player but unless Ofcom was prepared to restrict them from building their own network to give the altnets a clear run (much like BT was prevented from using their network to deliver cable TV when the cable networks were being built in the 90’s) then the altnets would have known this. What is ridiculous is where altnets are competing against Openreach but then competing against each other. Openreach don’t need anticompetitive practices the altnets are trying to eat each other. Hopefully it won’t be too long until they are all pulled into a single national wholesale network which tempts ISPs away from Openreach and gives it some serious competition and they need to get it done before VMO2/Nexfibre achieve the same thing.
What is all of this “Out of Reach” rubbish? It’s childish.
I’m glad I don’t work in the FTTP industry, it must be pretty nerve wracking!
Things are looking very bleak for Zzoomm…
They’ve spent £208m equity and debt to build 202k premises, a CPPP of £1030. Who’s going to pay anywhere near that to acquire? That £208m can’t be “worth” much more than £100m, if it’s even worth that. (Openreach and Netomnia/Brsk are building at 1/3 of £1030!)
£100m is about what the banks are owed. They might get most of their money back, maybe. Oaktree might be sitting on a total loss.
In the meantime Zzoomm is losing an unbelievable amount of cash. On an estimated turnover of £7-8m in 2024 COGS and admin expenses might be £5m (or more).
That leaves say £3m cash to go an interest bill of £15m! That’s a £12m cash gap!
Debt facilities are maxed out and unlikely to be extended, and due in just over 2 years. Oaktree need to put in more and more cash (as loans and with more interest!) just to cover interest payments but increasing future interest costs!
A death spiral that doesn’t look like it can be turned around. There’s no chance of Zzoomm becoming cash positive in the next 2 years, at which point the £100 debt becomes due!
Oaktree need an exit as soon as possible otherwise they’ll be throwing more good money after bad, and risking selling in a more distressed position, or having to put another £100m cash in/have the banks takeover to recover their cash!
That £1030 figure would assume a 100% take up. In reality best case is probably 30% take up which is £3400 per paying customer (current take up of 12% £7705 per paying customer).
@Big Dave: Zzoomm CPPP of £1030 is correct. £208m (equity + debt)/202k premises on the network (not customers). Per Mark’s UPDATE to this post of 190k RFS (still 12k to get to that 202k) they’re not even at £1030 the just yet.
£208m/23k customers (per Mark’s UPDATE to this post) = £9,043 cost per customer.
Big Dave great analysis. Zzoomm and Airband could merge into a super money burner. I wonder what would burn money faster, shovelling £20 notes into drax or zzoomm and airband just running their business?
This is the 90s all over again.
Eventually all this debt pile will end up with one provider who will just become another NTL.
Alt Nets should have been regulated to one per area. Overbuild is killing them.
As OR continue to run around FTTPing up all altnet areas those with no choice like me get further and further down the pile.
At the rate things are going every alt net will go bust before they even get a chance to build in my area, then with no competition OR will cancel the build and the under investment continues.
Absolutely. Free market competition is all very well and good but not if it means no one stands a chance of making any money. With overbuild we are just likely to be ending up with a lot of dead fibre in the ground.
For those old enough to remember…the Digital Region project managed to burn close to £100m.
The original alt-net failure, before the upcoming alt-net failures.
At least this time it’ll be primarily private capital lost rather than taxpayer money!