Roll-up or roll on? Prospects for consolidation amongst UK fibre-deployers

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Deployment of FTTP is proceeding at a brisk pace. Well over 100 companies are putting fibre in the ground, or are planning to. This includes the large incumbent players (Openreach and Virgin Media) but also many alt-nets. Amongst the alt-nets are some larger players (Cityfibre, for example), but also a very long tail of smaller players, many of which are too new or too small even to have filed company accounts yet. Nonetheless, in combination they are making a significant contribution to FTTP deployment.


Scale matters in telecoms. At a national level, it helps cover the fixed costs of network operation. It also helps build a retail brand to attract consumers, or alternatively scale that justifies a wholesale customer’s investment in integration with your network. Locally, scale is essential for return on investment. The fixed costs in deployment to a given neighbourhood means the profitability of that neighbourhood depends heavily on the percentage of premises passed that become paying customers.
In practice, over 100 fibre deployers are not all going to be able to achieve scale. As a result there is an industry expectation that smaller or weaker players will look for an exit, and consolidation is inevitable.


This does not necessarily mean that smaller alt-nets investing now are making a mistake – investing with an eye to an exit through disposal to a larger player is perfectly reasonable. However, this does depend on whether these large players are willing to acquire, at a price that represents a good return for investors. There are perhaps more challenges here than are generally recognised. These include:

  • Business model compatibility
  • Technical issues
  • Deal pricing issues

There are also a set of more specific challenges (particularly regulatory issues) that are relevant to individual likely acquirors. 

 

In this paper we set out these challenges, and consider the implications for industry consolidation. Fill in your details to access the full paper now.