McArthur talks merger and shares strategy for expanded Freedom Fibre

Nearly two weeks after Freedom Fibre’s merger with VX UK, CEO Neil McArthur talked to Fibre Provider regarding his strategy for the expanded altnet.

The new business will have a combined footprint of 285,000 and operate under the Freedom Fibre brand. Investor Infrabridge will control the combined entity.

Freedom Fibre secured its first Building Digital UK gigabit tender earlier this year and has begun offering a range of B2B products. It benefits from a long-term wholesale agreement with TalkTalk, which will remain a shareholder in the combined business.   

What are your short and long-term goals for Freedom Fibre?

In the short term, our goal is to ensure an efficient merger. In the first 12 months this will mean integrating the two businesses to act as one - integrating the network and IT systems as well as developing the wholesale and retail model.

We will continue building in the northwest to achieve a dense build in this area and progress the Gigabit contract we have in Shropshire.

In the medium term, we plan to work closer with our Altnet peer group and work towards further co-operation and mergers.

What competitive advantages does this merger bring for Freedom Fibre?

This merger gives Freedom Fibre scale. By approaching 300,000 premises passed between Freedom Fibre and VX, it moves us from the top 25 in the UK to the top 10 in terms of homes passed.

It also brings in an investor in Digital Bridge who have major ambitions in the UK. This gives us a platform for growth in the altnet top tier and helps us participate in the industry consolidation we see ahead.

What challenges do you see ahead for the merger?

With all telecom mergers, there are several challenges, starting with looking after the customers, converging networks to be as one in terms of services offered, and operational consistency.

With two teams of people, it takes some time to ensure everyone is in an appropriate role across the wider company. Given several of us have been through telecoms consolidation and M&A activity, we can appreciate the work needed and resource appropriately.

Between Freedom Fibre and VX we have a good spread of people and a deep skill base of experience. I feel we are well-equipped to overcome the issues we will face.

What does the merger mean for future build plans?

There is very little overlap on our networks and the builds are mainly all in the northwest. This presents us an opportunity to try and fill in the geographical gaps to give us a contiguous network.

Fortunately, VX and Freedom Fibre have been working in different geographies but not too far from one another. The combined build plans do need to integrate to be one operational network which will take about a year to achieve.

Meanwhile, we will plan the works to complement the merged networks and expand it.

Will you engage in further M&A?

This is the first proper merger of sizable altnets with different principal investors (both investors have rolled into the new entity), and it is likely to be the first of a number. As part of the merger, we have onboarded one of the world’s largest digital infrastructure investors in Digital Bridge and alongside Equitix we now have two major investors to take us forward.

Certainly, we have more mergers and M&A in mind to help scale the business further.

What impact will this merger have on the industry at large?

It will be noticed for sure. We are promoting cooperation in the sector and championing standards that lead towards more capital-efficient mergers. The competitive landscape is between BTOR, Virgin and the altnet community - not between altnets.

Consolidation helps give the altnet sector scale to be part of the future of UK Telecoms where we expect three major groupings to emerge over time, plus of course many niche players.

How do you perceive the competitive landscape of the fibre market?

Whilst it is a competitive landscape the issue is more the conversion from copper-based services to full fibre which is bogged down in BTOR and Ofcom issues of migration and customer education. Most altnets don’t overbuild each other - overbuild is generally limited to BTOR and Virgin.

A significant issue is the need for the large ISPs to build completely new IT stacks to consumer full fibre and their resources and cost make it hard for them to trade with multiple altnets. Consolidation helps with this issue.

This will slowly work itself out as altnets adopt standards to simplify interconnects along with consolidation and BT closing old copper exchanges. The UK is on the road to full fibre it is just not in full gear yet.

How do expect the wholesale market to evolve in the coming years?

Wholesale is essential to all altnets. The issue here is almost all altnet’s business plans are predicated on having consumers on their network. The most efficient altnets need around 30% penetration and the less efficient 50% plus.

Retail is dominated in the UK by the large brands - BT, Sky, Virgin, TalkTalk and to a lesser extent Vodaphone. After these, there are several substantial but not large ISPs, and the remainder are small-scale and/or owned by the altnets who started them.

The UK is brand-dominated and unbranded ISPs will struggle to achieve 20% penetration unless they are in rural areas with little competition, in which case build costs are higher.

What this means is that to achieve breakeven the altnet community need to wholesale. Wholesale is therefore vital to the sector and supported by regulation in the UK.