Broadband market revenue dipped back into negative territory in Q2, due to pricing pressure on both existing and new customers.

CityFibre’s capital raise puts it in pole position for altnet consolidation, while TalkTalk’s will enable it to compete much more effectively in the retail space.

Fierce competition is likely to continue unless and until retail altnets do the rational thing and consolidate into a wholesale model.

Service revenues were flat this quarter, pointing to strong underlying performance in spite of the drag from changing in-contract price increases and subscriber decline.

Traffic growth has picked up to 15% over the past couple of quarters, suggesting that at least some of the recent sharp slowdown was somewhat one-off in nature.

The outlook for revenue growth is positive, particularly thanks to BT/EE leading the way on ramping in-contract price increases, but there are also inherent risks in such moves.

Italy’s MediaForEurope (MFE) is set to become the majority shareholder of Germany’s ProSiebenSat.1 (P7S1) and the largest FTA broadcaster in Europe.

In a consolidating German market, P7S1 had no alternative credible option than to accept the (increased) MFE offer.

MFE believes that its new leadership position in European broadcasting will allow it to challenge platforms such as YouTube for regional advertising budgets.

VMO2 had a solid Q2 in financial terms, with revenue growth dipping but not by as much as we had expected, and EBITDA growth improving thanks to strong cost control

Consumer fixed is however continuing to deteriorate under altnet pressure, countered by mobile performing better than expected, with continuing weak subscriber numbers across both

Meeting 2025 full year financial guidance is looking more likely after a robust H1, but the trajectory thereafter depends heavily on how the altnet sector develops, a factor over which VMO2 has limited control now that NetCo has been cancelled

BT started its FY26 with robust financials. Revenue was slightly weak due to handsets and international, but EBITDA was slightly ahead of expectations, and operating metrics were strong.

The highlight was Openreach posting its lowest broadband line losses for over a year despite ongoing altnet pressure, and keeping revenue growth positive despite reduced inflationary price increases.

The altnet threat is still far from over, but it is encouraging that there are signs that it is beginning to wane as the sub-sector moves to a more rational wholesale model.

CityFibre has announced that its long-awaited £1.5 to £2.3 billion financing round is finally agreed, with it now able to use this money to fund its remaining organic build, integrating acquisitions, and covering operating losses until it reaches cashflow breakeven.

This capital raise will not be the first of many across the altnet sector in our view, as CityFibre’s business model is unique, and now partially dependent on the struggles of others to encourage consolidation.

CityFibre now has all the pieces in place to accelerate consolidation of the altnet sector, which will ultimately benefit the whole sector in ending unsustainable retail altnet competition.

Fixing an allocation quirk at BT pushed UK broadband revenue back into growth in Q1, albeit a very modest 0.8%, thanks to continued altnet growth and a very weak underlying market.

Broadband pricing is dipping down overall, but there is not yet evidence of pricing cuts targeted in altnet areas, a massive missed opportunity in our view.

The market will remain under pressure in the short term, but in the longer term altnet pressure will fall under all realistic consolidation scenarios.
 

Sky has officially launched on CityFibre’s network, offering up to 5Gbps speeds, which may have more of a halo effect for Sky than driving direct adoption of these very high end packages.

Sky is critical to CityFibre’s wholesale model given its size, and it is a good sign that Sky is proving an enthusiastic wholesale customer, while it is likely to be wary of others.

CityFibre still needs to complete its planned financing round to kick off a wholesale-focused consolidation wave, which would ultimately be beneficial to all incumbents in ending irrational price competition from retail altnets.

In a soft market for both consumer and B2B, service revenue trends continue to be dominated by in-contract price increase dynamics.

VodafoneThree’s launch signalled a cautious tone about prospects for mobile growth, presumably allowing for a degree of integration disruption.

VodafoneThree and VMO2 traded 79 MHz of usable spectrum, leaving VodafoneThree in a strong position spectrum-wise, albeit with some challenges given that its merger conditions reduce flexibility in its coverage approach.

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. EBITDA margins of as much as 35%+ are 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.