UK fibre altnets merge to gain greater scale

• Consolidation in the UK fibre-to-the-premises (FTTP) sector continues 
• Alternative network operators (altnets) Netomnia and Brsk, which have a common investor, are set to merge
• Once combined, the new operation will reach 1.5 million UK premises, making it one of the larger remaining players with a chance of independent survival

One of Britain’s most promising competitive fibre access network operators, Netomnia, is at the centre of the UK broadband sector’s latest consolidation deal, having announced its plan to merge with another fibre network builder, vowel-free Brsk. 

Wholesale operator Netomnia always looked like a decent bet for at least medium-term survival in the UK’s overcrowded fibre-to-the-premises (FTTP) networks sector because it had strong financial backing and an experienced, focused and capable CEO in the form of Jeremy Chelot, who has been active in the UK’s high-speed broadband market for almost a decade. 

Netomnia, along with its retail fibre broadband sister company YouFibre, has raised £795.5m in various forms of financing in little more than three years, including £147.5m of debt financing in March this year and £295m in April 2022. 

Its main investors have been DigitalBridge, Soho Square Capital and Advencap, the last of which has also been backing Brsk. According to the two operators, they have attracted £1.3bn in investment between them to date and have so far invested £300m of debt funding to reach 1.5 million ready-for-service premises with their fibre infrastructure. Between them they have 140,000 paying customers (about two-thirds of which are YouFibre customers). Both DigitalBridge and Advencap have pledged to invest further in the combined company.

“The additional capital from our investors and support from our lenders is a powerful endorsement of our vision and ability to execute at the highest level,” stated Chelot in the merger announcement.

Once the merger is complete, which is expected within the next few weeks, the resulting company, with Chelot as CEO, will aim to invest a further £600m to expand network coverage to 3 million premises by the end of 2025, a target that the operators believe demonstrates their “prudent approach to capital management”.

Netomnia’s current CFO, Wil Wadsworth, will retain his role in the merged company, while current Brsk CEO Giorgio Iovino will continue to run the Brsk operations, aided by his colleague Ian Kock, who will continue as chief operating officer (COO) of the Brsk business. 

Netomnia has been building out its networks across much of England (though not in the south-west or in London), as well as south Wales, Belfast and Derry in Northern Ireland, and a band across the middle of Scotland (from Hamilton to Falkirk and Livingston). Brsk’s rollout has focused on major cities, such as Birmingham, Manchester and Liverpool, as well as north Lancashire and west Yorkshire: There is little, if any, overlap between the two operators. 

The UK’s alternative network operator (altnet) sector was always set for significant consolidation as a spate of investments in startups from about 2019 to 2021 resulted in the UK FTTP altnet sector boasting more than 100 players, a situation that was always unsustainable. In the past few years, there have been a number of mergers and acquisitions, including the acquisition of Upp by Nexfibre, CityFibre’s purchase of Lit Fibre, and the merger of Broadway Partners, Voneus, SWS Broadband and Cadence Networks by Macquarie Capital and friends – more can be expected. 

Netomnia/Brsk looks like it’s going to stick around for a while, though it might become a takeover target itself for the likes CityFibre, which is doing better financially, has stated that it is planning several acquisitions to further expand its geographic reach, and is starting to pose a serious challenge to BT’s Openreach wholesale access division and Virgin Media O2. In fact, VMO2 has set up a separate wholesale fibre company and, courtesy of its owners Liberty Global and Telefónica, boasts Nexfibre as a broadband ally.

The sector’s latest M&A move comes as the UK fibre broadband altnet sector continues to gain collective strength. According to a report from Point Topic, produced for the Independent Networks Cooperative Association (INCA), broadband altnets reached 12.9 million premises, or 35% of the UK’s total, and boasted two million paying customers between them. 

- Ray Le Maistre, Editorial Director, TelecomTV