CityFibre Agrees £2.3bn Funding Deal to Boost UK Full Fibre Broadband
Digital infrastructure builder CityFibre has today announced that they’ve reached a crucial UK funding agreement worth £2.3bn (mix of debt and equity). The deal will support the ongoing deployment of their new 10Gbps capable Fibre-to-the-Premises (FTTP) broadband network and also drive a new wave of consolidation.
Just to recap. CityFibre has already deployed their full fibre network to cover around 4.5 million premises (inc. 550k customers) and they’ve long aspired to reach up to 8 million UK premises – representing c.30% of the UK. But their original target of hitting that by the end of 2025 will be missed, and they’ve also been facing some of the same pressures as many other networks (e.g. high interest rates, rising build costs and competition).
In response, the operator has already made some redundancies and shifted their strategy, which sees them focus less on new network builds and more on growth via mergers and acquisitions (M&A), as reflected by the deals to acquire Connexin (here) and Lit Fibre (here). Not to mention putting more effort into commercialisation in order to encourage take-up by consumers, which is where the recent deal with Sky Broadband may help (here).
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According to industry analyst James Ratzer – in 2025 and beyond, it’s expected that CityFibre will likely only build FTTP out to c.300k homes per annum organically, largely to meet their state aid backed Project Gigabit contracts. But the operator still aspires to add around 1 million premises each year, which suggests c.700,000 will be coming from the acquisition of other networks; something they’ve been very vocal about (here).
However, the operator’s existing funding had nearly run out, and they needed more in order to deliver on both their existing network expansion and their new consolidation strategy. Suffice to say that today’s agreement is aimed at tackling both of those issues.
What’s in the funding deal
The new financing includes £500m in new equity secured from CityFibre shareholders – Infrastructure at Goldman Sachs Alternatives, Antin Infrastructure Partners, Mubadala Investment Company and Interogo Holding.
On top of that, CityFibre has also agreed a committed £960m expansion of its existing debt facilities, supported by lenders including ABN AMRO, BBVA, Crédit Agricole CIB, ING, Intesa Sanpaolo IMI CIB, Lloyds, the National Wealth Fund, NatWest, SEB and Société Générale. The facility will support their “continued network investment and enable it to rapidly connect hundreds of thousands of new customers“.
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Finally, an accordion facility of £800m is also being made available to help drive CityFibre’s continued expansion through the acquisition of full fibre network assets. “This facility will be used to finance the company’s M&A pipeline and cement its position as the sector consolidator,” confirmed the announcement. This is a feature of loan agreements that allows them to increase, as required, the total amount of debt available under an existing facility.
Greg Mesch, CEO of CityFibre, said:
“This round of financing will supercharge CityFibre’s next phase of growth, as we consolidate the altnet sector, accelerate the pace of customer connections and unleash the full power of our market-leading 10Gb XGS-PON network, for the benefit of all our partners, their customers and for the UK economy.
There is huge opportunity ahead for CityFibre and it is testament to the success of the company that we have such strong backing from our lenders and shareholders. This multi-billion-pound investment into critical digital infrastructure will deliver significant benefits across the UK, helping to realise potential and unlocking economic growth.”
Chancellor of the Exchequer, Rachel Reeves, said:
“Today’s announcement shows Britain is attracting billions of pounds of investment, including through the National Wealth Fund, driving growth across British businesses.
Investing in our digital infrastructure is key to ensuring our economy is fit for the future. Through our Plan for Change we’re growing the economy by boosting investment in Britain and working hand in hand with businesses to create jobs, to put more money in working people’s pockets.”
The risk in all this is that consolidating alternative networks tends to be a slow, complex and costly process – particularly with many altnets still holding an inflated idea of their own asset values. CityFibre’s strategy around this thus remains somewhat unproven, and any new funding deal they strike now will be subject to less favourable conditions than they had before (e.g. interest payments will be higher).
Put another way, this may not be the last funding deal they’ll need, which means that some of the same underlying funding challenges could still resurface again in the future. The operator also faces other challenges, such as from the recent instability at one of their largest ISP partners, TalkTalk, which currently accounts for c.150k customers via CityFibre and is struggling in ways that could risk wider harm in the future (here).
Despite this, CityFibre has succeeded in growing a good level of scale and is one of the reasons why established giants, like Openreach (BT) and Virgin Media (O2), have had to accelerate their own FTTP plans in order to avoid losing too much market share. Suffice to say, it’s important not to underestimate the profound impact they, and others, have had on the market and will hopefully continue to have into the future.
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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, BlueSky, Threads.net and Linkedin.
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Rachel Reeves is jumping in there to attach some credit to her policies, but failing to realise that more than one-third of the funding is aimed at eliminating competition in the sector and is provided in anticipation of businesses needing to sell up because they are no longer viable.
The altnets need to be competing with Openreach & VMO2, not each other. Consolidation of the altnets into a third national-ish network I would say would be the most desirable outcome. CF (and others) now need to show that they can become a properly profitable business that can service its debts & pay corporation tax.
@Big Dave:
Unless they have contractual business relationships, they are all competing against each other.
In terms of consolidation, many of the AtNet network providers will be too small to justify acquisition costs. We could see some of them being bought out of administration if there is any value in acquiring their built assets. My personal view is that we have the foundations forming for five significant network providers and then a number of niche players. Consolidation need not only happen within the broadband sector but also across network providers in different sectors, which could improve margins and stability.
I agree with you about the shift towards sustainable business models; however, I would not write off CityFibre, given that it is not really an AltNet; it is rather a significant player with a good position as it is.
What happens in the UK will largely be driven by the decision the EU is to make regarding the consolidation of the market there. The UK has already accepted that mid-sized markets can now support only three major players. The EU is considering this change to their regulations. If it does change the regulars (recent comments suggest some of the commissioners are in favour this), then a round of sweeping consolidation will happen in the EU, leaving the likes of Telefonica, Vodafone (possibly) and Liberty Global focused elsewhere with options to buy up UKassets for those that can raise the funding. But we shall see.
I’m confused.
Back in 2022 Cityfibre secured £4.9bn debt package to fully finance CityFibre’s 8m home rollout and participation in BDUK’s ‘Project Gigabit’ rural programme. This latest announcement infers that much of that funding has not been forthcoming and they have therefore needed refunding package (and flexibility) to acquire capacity rather than just build it (which has been slow to RFS). But a lot of that original funding probably has been expended.
It appears their cost per premise (for urban) is high compared with other Altnets, they have a low take-up (some sites over 2 years old) and more aggressively priced Altnets have overbuilt them so its not just OR and VM. Yes they have attracted more ISPs but its the ISP who is control not them.
Acquisition is also likely to be at a premium because it is the smaller agile Altnets that appear to be proving successful in carving off a moderate market share and their owners/investors will want their return if they are bought out.
Sounds like creative or at least over optimistic accounting to me.
This isn’t the first time since then that they announced new funding.
I’d assumed the other deals were lapsing or preferential rates were secured as interest rates reduced.
I think the get term is “up to”, in that they don’t need to spend it all but gives confidence that they’re a going concern to support the planned build.
All that being said, I’ve not dug into the details of the various statements.
Many of those smaller agile network providers have implemented the bare minimum, while CityFibre has been building a decent network. CityFibre is also active in the business sector, so it has a more robust model. I was also adding that much of the “funding” is equity-based and/or debt facilities – it does not necessarily get used before the term of the facilities expires. I think it would be a mistake to underestimate CityFibre. It may disappear, but it is in a much stronger position than the AltNets.
Going through money like no tomorrow. I hope this doesnt end up resulting in mass redundancies on a company that tried to grow too quickly
You speak of redundancies as if they were a problem.
The two I’ve had previously have resulted in increased pay elsewhere and a rather nice payoff.
Win/win
Can they not finish where they started first? Half the town is done the other has been “coming soon” since 2021. Not asking for a friend
@harrWhat’s your town/ city? Doubtful it will be finished, they ran out of money made redundancies and moved their model to BDUK to get government money.
Race is on to 2027. How much pain can BT take, how much does CF need to keep it alive. After that, who knows.
@alnettruth going to be an interesting road! I think BT can take the pain personally. They have already started their redundancy processes and I’d argue they have a strong strategy for the next 5 years regarding staffing levels. Their share price price is at its highest for 4 years matching 2021/22 levels.
Openreach expect a 40-55% take up of their network, given that they intend to build to build to 30 million premises that will be somewhere around 12-16.5 million customers. Including multiple connections to businesses I’m guessing there will be around 40 Million total connections so my (very rough) guess is that we will end up with 15-17 million with Openreach, 5-8 million with VMO2/Nexfibre (if they get their wholesale thing off the ground) with the rest going to the altnets if they get their act together.
what a disaster. A patchwork of legacy networks is nowhere near as optimal as the efficient, streamlined network originally planned
@clivepeters no chance it would ever happen it’s too expensive. Is it a disaster? Maybe but I’d argue the quality of City Fibre build in areas is a disaster. Not unlike any other alnet or indeed VM or OR.
CF is will be in trouble if they consume too many alt nets. They’re not gonna drop their price as they need a return on investment. That means paying for all the inefficient build practices run across the UK not to mention the overbuild. Then the cost and time to connect those networks to theirs. Then to make matters worse they have the majority of the Gigabit contracts, BDUK contracts are always complicated and drawn out.
That is why Openreach has chosen to just self fund via BT group. They aren’t dependent on anyone but themselves. That means they can build at a significantly faster pace and fully control their plan.
By the time CF get any traction on acquisitions, which likely they’ll have competition from Netomina and Nexfibre. Openreach will have completed build to the initial 25m homes, have scaled back their build to reach the final 5m in rural areas and while that is happening will be on a full scale connections and upgrades. I mean they have already got 35% take up.l without have primary focus on it, when they put more effort into it over build it will fly especially with PSTN shutdown fast approaching.
So yeah CF I think may be in trouble, then all the BDUK funding will be wasted.
Nothing will change if CF don’t stop wasting money internally. The level of waste inside that place is genuinely concerning. If I was an investor in this company, I would be seriously looking at the leadership because it bleeds cash for very little outcome.
Still won’t allow me and lots more people to get faster fibre in a flat, this is a major problem and these companies do not care about it.