Altnets in the UK: Consolidation endgame
The largest UK altnets are now all at or close to EBITDA positive, but still heavily cashflow negative even pre-interest costs and with paused builds, due to various below-the-line cash costs requiring continuous funding, with EBITDA margins of as much as 35+% required to actually be cashflow breakeven
Altnet economics are still challenging even if debts are fully written off, with a payback of more than 5 years on customer acquisition and connection costs alone
The consolidation endgame is increasingly imminent, with the outcome likely to be a mix of CityFibre/VMO2 acquisitions, stand-alone niche players continuing, and abandoned assets, with the outcome for the rest of the sector more benign under any scenario than current trends
Related reports
The mid-sized UK altnets Zzoomm and FullFibre have agreed to merge, in what looks like an all-share merger of (nearly) equals, both of whom have been struggling to raise finance.
Why did they pick each other rather than the larger CityFibre/Netomnia/nexfibre options? Valuation may have been the key factor, but it has left them still vulnerably low scale with further consolidation necessary.
Much more consolidation is required for the sector to be sustainable in our view, and further financial distress may be required for realistic valuations to emerge.
VMO2 reported solid financials in Q1, with revenue and EBITDA growth both improving and both (just) ahead of full year guidance.
Subscriber momentum however was poor across fixed and mobile, despite customer service improving, with broadband in particular likely to get worse as network buildout slows.
Meeting full year guidance is still achievable, but will likely require a significant altnet slowdown sooner rather than later in the year.
UK Altnets: CityFibre hits profitability (of sorts)
11 February 2025CityFibre has reported positive EBITDA in 2024, albeit at a slim 4% margin, and still needs further scale—and to successfully onboard its new wholesale customer Sky—to drive decent investment returns.
CityFibre’s organic build rate is dropping sharply as it (sensibly) looks set to rely on consolidation to achieve the required scale, with its organic build focused on Project Gigabit areas.
CityFibre remains well-positioned for consolidation, but this may take some time yet, with the altnet sector set to slow organic progress anyway in the interim.
Altnets in the UK: Waiting for the music to stop
28 October 2024The 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 Netomnia/Brsk merger will create the third largest UK altnet with 1.5 million homes passed in much the most significant altnet merger to date, combining two fast-growing, innovative challengers.
Both Netomnia and Brsk are burdened by eye-watering EBITDA losses; merger synergies alone are unlikely to solve this, with much more scale necessary, making further inorganic moves likely.
The merger creates an alternative prospect to the assumption that either CityFibre or VMO2/nexfibre will consolidate the market, but the combined group may prove more an enhanced target than an active acquirer.
The mid-sized UK altnets Zzoomm and FullFibre have agreed to merge, in what looks like an all-share merger of (nearly) equals, both of whom have been struggling to raise finance.
Why did they pick each other rather than the larger CityFibre/Netomnia/nexfibre options? Valuation may have been the key factor, but it has left them still vulnerably low scale with further consolidation necessary.
Much more consolidation is required for the sector to be sustainable in our view, and further financial distress may be required for realistic valuations to emerge.
VMO2 reported solid financials in Q1, with revenue and EBITDA growth both improving and both (just) ahead of full year guidance.
Subscriber momentum however was poor across fixed and mobile, despite customer service improving, with broadband in particular likely to get worse as network buildout slows.
Meeting full year guidance is still achievable, but will likely require a significant altnet slowdown sooner rather than later in the year.
UK Altnets: CityFibre hits profitability (of sorts)
11 February 2025CityFibre has reported positive EBITDA in 2024, albeit at a slim 4% margin, and still needs further scale—and to successfully onboard its new wholesale customer Sky—to drive decent investment returns.
CityFibre’s organic build rate is dropping sharply as it (sensibly) looks set to rely on consolidation to achieve the required scale, with its organic build focused on Project Gigabit areas.
CityFibre remains well-positioned for consolidation, but this may take some time yet, with the altnet sector set to slow organic progress anyway in the interim.
Altnets in the UK: Waiting for the music to stop
28 October 2024The 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 Netomnia/Brsk merger will create the third largest UK altnet with 1.5 million homes passed in much the most significant altnet merger to date, combining two fast-growing, innovative challengers.
Both Netomnia and Brsk are burdened by eye-watering EBITDA losses; merger synergies alone are unlikely to solve this, with much more scale necessary, making further inorganic moves likely.
The merger creates an alternative prospect to the assumption that either CityFibre or VMO2/nexfibre will consolidate the market, but the combined group may prove more an enhanced target than an active acquirer.