Enders Analysis Finds 20 Largest UK Altnet BT Rivals Lost £1.3bn in 2023
A new report from analyst firm Enders Analysis, which was today shared with ISPreview, has calculated that the 20 largest alternative UK broadband networks (i.e. BT / Openreach challengers) collectively suffered losses of around £1.304bn in 2023 (increased from £755m in 2022) – driven by high interest rates and rising build costs.
The news won’t come as much of a surprise to our regular readers, as ISPreview has often had to report on the challenges being experienced by network operators over the past couple of years. The situation has been fuelled by rising build costs, fierce competition from rivals (e.g. overbuild and the challenges of growing take-up) and the difficulties of securing fresh investment during a period of high interest rates (as well as tackling debt repayments).
In response, we’ve seen many network operators adopt a more protectionist strategy, which often involves scaling-back (or even halting) their deployments of new full fibre (FTTP) gigabit broadband networks and switching their focus to growing customer take-up. At the same time, some other network operators and investment firms have gone on a consolidation drive in an effort to capitalise on the difficult climate (e.g. CityFibre).
Advertisement
However, consolidation is a complex business, not least due to the inevitably slow and often expensive process of needing to integrate networks that may not have been developed to the same standard. In addition, some operators, such as those that exist in more heavily overbuilt areas, may often have an inflated opinion of their own asset value, which can make it difficult to secure a viable consolidation agreement in the first place.
Despite this, the new Enders Analysis report (not available to the public), which echoes many of these challenges, predicts that the “music will inevitably stop, and consolidating before they are forced to will lead to a better result“. This is despite UK altnets being otherwise deemed “very successful at rapidly rolling out their full fibre networks, beating expectations to reach nearly 14 million premises passed to date“.
Weaker-than-expected penetration is naturally seen as one of the key problem areas, with the overall figure at just 12% at the end of 2023, versus 11% at the beginning. Enders suggests that most altnets are now heading for under 20% take-up, “even at maturity“. Brand recognition is a problem here too, particularly for unfamiliar altnets that aren’t able to attract any big-name retail ISPs (consumers tend to be less trusting of unfamiliar brands). Enders is thus “sceptical of the prospects for wholesale at the hybrid retail/wholesale altnets“.
Enders Analysis Statement
The UK altnets collectively lost over £1bn in 2023, with most metrics unrealistically distant from what they need to be for a sustainable model, particularly the smaller retail-focused operators.
Consolidation is essential for survival, and CityFibre at least has a reasonable case for long term sustainability with a wholesale model and Sky as a customer, and looks the most viable altnet consolidator in our view, with VMO2/nexfibre able to pick up the pieces should the sector fail.
A lack of long-term viability and related financing difficulties will dramatically slow network roll-out, reducing the altnet pressure on the rest of the sector even if consolidation improves penetration levels.
The report adds that the combined revenues of the largest altnets only rose by a third to £316m in 2023 (up from £251m in 2022). But the ability to achieve a positive EBITDA (i.e. earnings before interest, taxes, depreciation, and amortization), which usually indicates that a company’s core operations are profitable and likely generating positive cash flow, helps to underline some of the challenges.
Advertisement
For example, EBITDA margins did improve in 2023, rising from -132% to -107%, but this is “not a massive jump given the maturing state of the industry, and the losses remain very significant and actually grew in absolute terms“. Furthermore, only a handful of altnets currently “appear to be even making strong strides towards being EBITDA breakeven” (e.g. CityFibre, CommunityFibre and Hyperoptic are doing better on this front).
Overall, it’s a tough environment and there’s still a long way to go before we can see how all of this will pan out, but we expect the next couple of years to be fairly eventful.
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.
« Broadband ISP Grain to Expand UK Full Fibre Network in Warrington
You know, there’s going to come a time when investors are no longer willing/able to carry on throwing good money after bad.
I suspect we may have driven past the Cut Your Losses pub quite some time ago….
We are running into diminishing returns. Only around 14% of the UK remains without gigabit access, so expanding into the remainder is mostly the hard to reach and expensive areas. This leaves having to increase the the prices for existing customers to cover debts.
Who would have guessed.
Interesting they single out City Fibre as having a good sustainability case even tough they have more unsustainable debt than the bottom two thirds of altnets all combined
Bear in mind the figures I have seen reported all include build costs, build costs are not perpetual so will eventually disappear of the annual accounts.
Any startup company will be loss making early on, as they have to speculate to accumulate.
CityFibre numbers out of the ones I looked at looked the worst, but they also have the most potential due to have the most developed wholesale model outside of OR. There is no way they hitting their original target, and I expect they will announce an early end to their expansion program by end of 2025.
If the revenue from customers doesn’t my cover the interest on the loans provided to build the networks, the build costs may continue to feature on the annual numbers – and even increase – long after building has stopped.
Hardly suprising is it. Vast sums of Money spent on unnecessary overbuilds and unlikely to attract customers when they have run rough shod over potential customers communities .Duplicating , triplicating or more unnecessary infrastructure and alienating potential customers will not be a successful buisness model. They deserve to fail
Might be what happened in KCOM land but virtually none of it outside of it. Nearly everyone going underground or using existing infrastructure with very few networks making use of poles where there was usable infrastructure. One network that stands out, apart from that pretty minimal.
Good to know your upset over the poles in your area makes you want all the businesses that have hardly used them to fail and their employees to be without jobs. That’s not vindictive at all.
Not big deal. Is it your own money? No. So what’s the issue? Investors know they have a risk and losing some investments it’s part of the game. The fibre networks are here to stay, even if all the Altnets go bankrupt. So nothing to see here. Let the consolidation begin, get a large third network player to compete with the duopoly of Openreach and VM.
Consolidating the altnets into a third national network is the most desirable outcome, the problem for the investors is that it will inevitably mean crystallising your losses which is probably why we aren’t further down that road already.
Why didn’t anyone warn them that there simply isn’t enough customers to make it profitable for everyone!?
There will be enough customers, eventually.
What wasn’t understood is just how many people are content, today, with the speeds delivered by VDSL.
Or just how much existing line plant is direct-in-ground.
@MikeP, you could be correct on that. Went for a walk this morning to a retail park, and I normally have a peak to see if any more people have changed to FTTP, I last walked there around 4 weeks ago. Don’t look like there is any substantial amount since I last walked down. Maybe one or two. The majority of houses still have no splice box on the wall. Even people I know when I say about them going to FTTP, they say they are happy with what they have, it works, and they don’t feel the need for anything different.
I can understand where they are coming from, I felt that way and still do. The faster speed is useful for downloading files and yes, when I redid the PC and downloaded the games again, that was good. But how often do I do that? I could have waited if I was still on FTTC.
The majority of people, I presume, will not really do anything that requires super-duper speed.
I did see two Zzoomm vans down the road last week and the people were taking two fibres across.
We can just wait and see what happens, nothing else we can do, I will stay with who I am with, I may drop the speed when my contract next comes up, depending on what the money tree is like.
I’m not surprised. I live in a double overbuilt area (where Openreach were first to FTTP – though I understand its fine for altnets to overbuild them but not for OR to overbuild an altnet, according to the fans).
Judging by the Openreach boxes on homes I suspect that both altnets aren’t remotely close to making back their money, and that’s with one altnet already having it rigged in their favour through being able to use precious Openreach assets at artificially low prices.
BTIvor, the main problem is, Openreach has a huge advantage over Altnets, being that the majority of people are using ISPs using the Openreach FTTC network. So most people will change to Openreach FTTP network, since they are already with an ISP.
Thankfully, some people see sense and realise that an Altnet can give them a better network for less money. Saw two Zzoomm vans up here yesterday, one up by me and another one down in the next road, putting up new Fibre for people. That is great news.
I am glad we have a choice, and I don’t have any finances linked to BT or Zzoomm, so my interest is only in keeping a decent network, not like a lot of other people on here who seems to have a financial interest in BT.
Openreach need to be split up from BT, have nothing to do with BT whatsoever, not the false, rubbish we have at the moment., Taking BT off their vans means nothing.
I hate BT, in case you have not realised.
Isn’t this the company in such a perilous state that they issue a press release every time they get a new customer? lol. Maybe people can’t find them because of their silly name.
You argument doesn’t make sense. End users don’t have relationships with Openreach or any other wholesaler, their ISP does. There is nothing preventing Sky or Vodafone convincing their users to move from FTTC to (cityfibre) FTTP if they so wished. Of course one would hope that Ofcom allows Openreach to provide a competitive response.
Of course, BT won’t be moving its customers to an altnet but why would they ever want to anyway? They already have access to the UK’s largest and most financially viable network.
‘I hate BT, in case you have not realised.’
Really sad given you’ve had no bad experience from them, all they did was not give you what you wanted at the price you thought you should be paying for it. Most of us grew out of throwing tantrums over not getting what we want in our formative years.
Thanks for the update on Hereford’s broadband market. The rest of us are genuinely enthralled by the updates on the build out and take up of broadband in a few streets of a random cathedral city. Truly life-changing stuff setting the scene for the market in the rest of the country and I’m sure we’re right alongside industry leaders in waiting for the next scoop.
‘one altnet already having it rigged in their favour through being able to use precious Openreach assets at artificially low prices’
The prices are regulated. Nothing is being rigged. The numbers that formed the basis for the PIA pricing came from BT Group. Openreach get a return on investment and do not consume PIA so are still able to considerably undercut efficient altnet costs per premises passed.
Many would prefer if Openreach weren’t offering any active FTTP at all but just dark fibre paths just as they used to sell copper paths. It wasn’t until FTTC that they started in the wholesale broadband market, before that they provided copper and others provided the broadband signal. Would forcing them to carry on doing that with full fibre be rigging things too or just regulation? They were given dispensation to provide FTTC: was that rigging the market against existing broadband providers using their copper?
Once the big rollouts are done there should be some more deregulation.
PIA is fine. Without it we’d either have streets of poles (see KCOM-land) or be continuing to pay over the odds for a telco/cableco duopoly (see USA/Canada).
@BTIvor, sadly a lot of people have not choice but to use openreach and that is the problem. If we did not have Zzoomm here, we would have no choice either. To be honest, I am shocked that Zzoomm came here. If they did not come here then I would have stayed on FTTC, but would have changed provider.
@Witcher, I have had bad experience with BT, I was with them on ADSL many years ago, Vowed never to use them again when I changed to I think ADSL24. Left ADSL for a wireless network, sadly it did not work out, so had to go back to Openreach network, since FTTC was up and running then, it made sense to use it.
Sadly at the time, Plusnet was the only one that could hook me up quickly, so I went with them and to be honest they were ok, which is why I stayed with them. Yes, I know they are part of BT., but they were run differently to how BT is run. at least you used to at the time get people who knew what they were on about, not reading from some script.
I would prefer dark fibre to be honest, but that is not going to happen, so we have to cope with what we got.
@Ad47uk: What problem is being solved by splitting Openreach from BT? The fact is that OFCOM heavily regulates Openreach and another fact is that PIA is working after an uncertain start. Speaking personally the likes of Sky, Vodafone and Zen Internet, all chosen at random, offer me GPON broadband over Openreach’s fibre. (As a bit of a geek I’m actually waiting to see if another operator will install its CBT in a joint box under a pavement eight doors along.)
They over build, they ignore area where they would have a monopoly… But where payback could be several extra years away
My old town has four providers now, be impressed if anyone got a quarters share of customers??
There are cities and more populated areas with 3 or 4 (sometimes more) fibre providers – meaning there is fighting over a set number of potential customers. In these areas, brand recognition is absolutely key. People don’t trust a brand they’ve never heard of, selling promises these people have probably heard before. Contrast that with huge swathes of rural Britain (particularly in Scotland or Wales) where its Openreach or no-one. FTTP is rolling out at a snails pace, and only really through support of national and devolved government intervention. When there is interest from an altnet to look at possible projects in rural areas, the eye-watering costs scare off investors. Even when we have seen altnets actually delivering in difficult rural areas, there are still issues with brand recognition, as well as people unwilling to give up their bt email address! The only way to make these altnet deployments successful is through a decent amount of community engagement, so potential new customers understand and trust whats being sold.