UK Banks Set to Take Losses on Loans to Alternative Broadband Networks
In news that will surprise none of ISPreview’s regular readers. Several major UK banks, such as NatWest and Lloyds, among others, have confirmed that they’re setting aside funding to cover loans that were issued to alternative fibre broadband networks (altnets) and which are now deemed unlikely to be repaid in full.
Regular readers will know that we’ve often had to report on the challenges being experienced by broadband 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 (e.g. tackling rising debt repayments).
The fact is that building new Fibre-to-the-Premises (FTTP) based broadband networks from scratch is an extremely expensive business, which often requires long payback periods of around 10-15 years. But this situation was made all the more challenging by the fact that so many altnets sprang up during the same 2-3 year period, with many basing their original plans on the now wrongful expectation of a less competitive market.
Advertisement
In response to the recent challenges, many altnets have since moved to protect themselves by switching their focus from rapid network expansion to strong commercialisation of what they’ve already built (i.e. growing take-up), which is a sensible approach. This could also be seen as buying time for natural market consolidation to take place (we’ve already seen a fair bit of it), although it’s so far been moving more slowly than hoped; likely tempered by some unrealistic asset valuations of built infrastructure.
At the same time many altnets have built up a substantial amount of debt, which is proving difficult to repay in a timely fashion due to the aforementioned challenges (particularly lower than ideal levels of take-up and thus revenues). Some altnets could perhaps arguably be said to have sold investors on being able to achieve a stronger level of take-up than was perhaps realistic.
Loans still need to be repaid
According to the FT (paywall), the Lloyds Banking Group recently confirmed that its commercial banking unit had already set aside £25m to cover loans to the fibre sector that were now deemed unlikely to be repaid in full. At the same time NatWest, which is considered to be one of the banks most exposed to the sector (they’re estimated to have lent about £1bn to altnets), recently reported a £76m impairment in its second-quarter results, which one source said included expected losses on loans to altnets.
The newspaper states that creditors are now holding talks with several altnets, such as Gigaclear, over how they will repay the substantial debts they have accumulated to fund their network deployments. Solutions other than consolidation (or complementary to that) are likely to involve a combination of things, such as reaching agreements with other shareholders to inject extra cash, swapping debt for equity or extending credit facilities etc.
Advertisement
The state-backed National Wealth Fund (formerly known as the UK Infrastructure Bank) is similarly known to have committed £1.1bn for lending to altnets in recent years. The NWF is said to have offered indemnities to lenders on some riskier loans to the sector to encourage investment. “We only commit capital where we are needed and, in the case of altnets, where market appetite is restricted, we have worked to crowd in commercial investors to help meet the government’s Gigabit ambitions,” said a spokesperson for the NWF.
On the flip side, it’s important to reflect that, despite the financial challenges, all of this investment has helped to produce a much wider variety of competition and thus network choice and coverage for consumers. At the end of June 2025 our H1 2025 broadband coverage report revealed that around 88% of UK premises now had access to gigabit-capable broadband speeds (78% when only looking at FTTP) and the UK government expects this to reach c.99% by 2032 (target delayed from 2030); that’s up from just 10% in 2019.
Nevertheless, Enders Analysis calculates that altnets are collectively carrying more than £7bn of net debt and predicts that write-downs in this sector have been “inevitable for some time“. But as ever with such situations, it’s important not to colour every altnet with the same brush.
Some altnets are in a far stronger position than others and inevitably where there are losers, there will also be winners. Put another way, the incumbents of Openreach and Virgin Media cannot afford to rest on their laurels as greater competition is likely to be a sustained reality, even as the number of smaller altnets continues to shrink.
Advertisement
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.
« EE UK Set to Cut BT Wholesale Out from Slower Broadband Packages
Advertisement
Leave a Reply
Privacy Notice: Please note that news comments are anonymous, which means that we do NOT require you to enter any real personal details to post a message and display names can be almost anything you like (provided they do not contain offensive language or impersonate a real persons legal name). By clicking to submit a post you agree to storing your entries for comment content, display name, IP and email in our database, for as long as the post remains live.
Only the submitted name and comment will be displayed in public, while the rest will be kept private (we will never share this outside of ISPreview, regardless of whether the data is real or fake). This comment system uses submitted IP, email and website address data to spot abuse and spammers. All data is transferred via an encrypted (https secure) session.
I wonder if this may contribute to a catalyst to set the consolidation train in motion, with many debt-ridden Altnets getting the wake up call from their banks about their ability to fully repay the loans they’ve drawn.
No, it will have come from the syndicates of backers – debt funds, and shareholders – and that will have happened sometime ago.
Altnets would be well advised to seek mergers or sales now. The longer they leave it, the less attractive the terms. The situation mirrors the UK’s roll-out of railway lines, the so-called “Railway Mania”. Then poured money into railway schemes, believing lines would always be profitable. Dozens of new companies were set up, many with little realistic chance of success. Many banks and investors will lose out, but at least it has spurred competition and a faster roll-out from OpenReach than may have happened otherwise.
Well, sort of maybe true about the roll out speed. But will be like cable?
Contractors put the conduit in 3 inches underneath instead of 2 foot or whatever and a few years later the trees attack.
Now I suspect BT contractors or hope they have, a higher QA in force.
It’s ALWAYS, you get what you pay for.
There are no short cuts, take ’em. Costs more.
As the old saying goes: Owe your bank 20 grand and can’t pay? You’re in the s***. Owe them 20 million and can’t pay? They’re in the s***. Hopefully as reality bites this will allow the so called “Great Consolidation” to gather pace as companies are forced to accept realistic valuations.
Owe the bank 20 million and can’t pay? The bank will seize control of your company and sell the assets. If banks are predicting losses then bond and equity holders will be looking at severe losses and wipe-out respectively.
The syndicates backing the investments have a range of options and they are by no means held ransom by the underperforming businesses.
Most will have already considered the possibility of losing the capital, which they can use as write-offs against taxation. Some have so much money to invest that they will hardly notice the losses.
The general public expectation is still that interest rates will continue to fall. However, with inflation still rising, the balance of opinion at the BoE will likely shift from the current 50/50 split to backing for further increases in base rates.
A rise in base rates will likely have a greater direct impact on consumers and businesses as economic activity inevitably continues to decline, rather than the longer-term arrangements many AltNets will have with their financial backers. Trump’s interference with the independence of the Fed may yet cause other trends, but they could also go either way in terms of economic impact within the UK.
Stagflation, which is what we appear to be heading for, will likely affect the rates of take-up on the networks and may actually cause take-up rates to start to reverse. Financial institutions are clearly preparing for this, even if the government still privately thinks otherwise.
Further, it is reported today that a major player in the UK market has been given the go-ahead to proceed with M&A actions in its home market, which would eat into the acquisitions fund it has been building recently. It was further reported that this player, Telefonica, will likely focus its M&A activity on the Spanish and German markets for the foreseeable future. It has therefore likely decided to deprioritise any M&A options it had been looking at in the UK.
I think from this, all players in the broadband market may have to wake up to the possibility that, for many, any option for survival through acquisition by another player may no longer be on the table, and that the market will likely face harsher conditions going forward.
People will seek value and may well find it in altnets. Can’t see how it would impact their take up. Banks are readying themselves as networks over extended and there is little chance of them being sold at a profit. A lot of companies have been profoundly over valued and those valuations are on their way towards reality.
The fed is not independent which is why it isn’t cutting rates, picking up the reigns is the common sense option. It should be abolished though
In a lot of overbuild areas the take-up is abysmal. In these areas a few million were spent but the network itself has almost zero value when it has low customers and the other network can deliver to the same locations
@ John:
The Federal Reserve is independent of Congress and from the interference of the POTUS.
The institution makes decisions based upon analysis, not political whims.
@Polish Poler:
An economy that falls into stagflation will impact both residential and business consumers of telecoms services. Thus, service providers would be subject to worsening trading conditions.
Banks are responding to the prevailing indicators; their provisions are being boosted due to anticipated economic and financial conditions for whole sectors of the economy.
I would stick to telling people on The Register that the Online Safety Act is fine as if you’ve nothing to hide you’ve nothing to fear.
Using some altnets results in cheaper retail prices than Openreach so if the economy is really bad consumers very sensitive to price may choose them, it’s hardly rocket science.
Given that it may increase uptake of altnet services as previously indifferent consumers using Openreach services may seek cheaper options given the economic push factor. Hardly controversial.
Genuinely curious why you hug Openreach nuts so hard.
@Polish Poler:
Thank you for your advice, however, as I have said, I am not influenced by childish considerations.
There is a lot more to a declining economy than the affordability of the cheapest options. There is a heightened risk of default on both sides of the contract for a start, which will impact businesses that are already struggling. So no, it is not a no-brainer.
You can spend your time chasing all the possibilities, but macroeconomic forces will dominate trends in any recession stagflation scenario. These trends tend to be invariant and rather predictable, contrary to what many would have us believe.
A certain sense of deja vu is currently circulating within the Nolan household (see https://shorturl.at/syLKo) and I’ve commented in the past on the “art” of valuation. My only comment on the current farce is brief i.e. “who are/were the idiots within the lending fraternity sanctioning such reckless borrowing?”
Immediate thought is wondering why the SCTE published this to be honest. Various factual inaccuracies and totally pointless as no real call to action conclusion.
The most surprising thing about the current situation is that some lenders are still giving out money. Highland Broadband and Go Fibre have both recently secured tens of millions, despite it being blatantly obvious to anybody with industry knowledge that they have little chance of survival. Any lender who allows a tiny company with no track record to borrow 100x their turnover deserves to lose their shirt. It’s reminiscent of the dotcom boom – people were so desperate to believe the fantasy that they failed to employ any common sense to the investment. Most of these lenders should be preparing to get back a few pennies in the pound, not just a small write-down.
Given that the Scottish National Investment Bank is involved, it is more likely that it is the Scottish and UK taxpayers who would take any hit from the investment.