Recession to catalyse industry consolidation

With full fibre success stories in full flow it is easy to forget that the sector is impacted by the same tempestuous economic conditions as the rest of the UK.

The good news is that altnet leaders expect to navigate choppy waters with the continued support of investors and the government - but they warn that the UK’s fibre landscape may look different when the storm subsides.

For example, economic uncertainty will sharpen industry leaders’ focus on growing market share via organic and acquisitive means.

Oliver Helm, CEO at FullFibre said: “Any impending recession means that altnets will need to increase focus on acquiring market share to stabilise the long-term business.” 

We have already seen operators begin to envelop each other with Connexin, ITS, Zybre and Giganet all securing deals in 2022, but with over 100 fibre providers now in the market, more activity has become inevitable.

Joe Frost, Business Development Director at Gigaclear, agrees: “Our view is that a recession will accelerate altnet consolidation and in turn improve the efficiency of the altnet industry and give customers a stronger set of choices for providers in the long term.”

Giganet CEO Jarlath Finnegan adds: “There will always be winners and losers in any sector. Consolidation is likely to happen and that isn’t necessarily a bad thing if it happens at the right time.”

Altnets will also look to organic methods of growing their footprint, increasing strategic focus on turning homes passed into homes connected.

Helm continues: “Where companies have built ‘build engines’ these are now being re-focused onto the timeline to EBITDA positive positions. 

“There’s going to be a fine line to walk between giving broadband away at very low prices now to gain take, and the longer-term plan to drive value out of the fibre asset.”

This mindset shift marries investor attitudes, with ISPA’s What Lies Ahead report finding that commercialisation and market share were to be the key metrics in the next round of investment.

So far, it has been the proven ability of ambitious altnets to raise capital that has supported the strength of the UK’s fibre rollout, with over £20bn of private equity and debt being so far committed to alternative providers.

Finnegan noted: “High-level investment from independent broadband providers is propelling the UK forward in the delivery of nationwide full fibre infrastructure and this must continue.”

Faith retained in government commitments

The ongoing recession raises questions about the ongoing support of the government. However, industry leaders retain faith that the money will continue to flow.

“When it comes to funding, I’d be surprised if the allocated £1.2bn (of the initial £5bn promised) Government funding were to be reined in: broadband is a necessity and a utility,” said Helm.

Indeed, the Chancellor safeguarded Project Gigabit’s funding in his Autumn statement, in mind of future economic benefits unlocked by the technology.

Finnegan adds: “This was received as welcome news within the industry at this challenging time.

“Investment in digital infrastructure projects helps to grow our economy, and it’s reassuring to see progressive thinking that gives digital the same status as traditional infrastructure investments such as rail and roads.”

Finnegan cites studies commissioned by the UK’s National Infrastructure Commission (NIC) estimating net benefits from investment in FTTP with 100% coverage of up to £28bn by 2050.  

As the UK becomes increasingly fibred, government investment will take more of a focus as a way to connect underserved and hard to reach areas.

However, fears are arising regarding the procurement system.

Helm states: “The current Government mindset appears to be: ‘just get everything done in the next 18 months’. 

“This inevitably risks procurements falling to the largest organisations (Openreach specifically) for speed of contract award, based on supersized lots.  This could do a lot of damage to Nets’ Area three plans and lead to a longer delivery time for consumers, probably with more getting left behind as selective dropouts.”