In mid-2019, staff at the largest hospital in Milton Keynes struggled to access patient records and process imaging and scans because the internet connection was so poor.

“Our digital infrastructure came to a standstill,” said Oliver Chandler, chief of technical IT services at Milton Keynes University Hospital. Chandler’s team in the city in the south east of England contacted CityFibre, which had installed full-fibre broadband lines in 275 areas in the UK, and within two weeks the hospital had a new network.

CityFibre is one of dozens of so-called alternative network providers — or “altnets” — that have taken advantage of the frigid pace at which BT, the former monopoly, upgraded its network to quickly dig up streets and build fiber networks across the country.

It has now completed its rollout in its flagship area, Milton Keynes, with 90,000 homes and 90 percent of the population having access to the network.

But over the past year, the battle between these challenger companies and the incumbent broadband companies has intensified as Openreach, BT’s networking division, and Virgin Media O2 have responded to the threat by accelerating their full fiber rollout.

The question is whether money will continue to flow from private equity funds and debt capital markets, which have been the lifeblood of the sector, pumping an estimated £15bn into a handful of the most promising companies.

This depends on their assessment of whether BT can use its market dominance to build networks being built by newer entrants – including CityFibre, Hyperoptic, Gigaclear and Community Fiber – and convince existing wholesale customers such as Sky and TalkTalk to stick with them.

Several smaller companies have already gone out of business, with many more expected to follow. The vast majority of others will likely be bought out by bigger players.

Chart showing OECD countries in full fiber rollout, Percentage of fiber, DSL and cable subscriptions in total fixed broadband, June 2021

In 2018, when it became clear that the UK was lagging far behind almost all other developed countries in upgrading its network, the government began to encourage these alternative providers, hoping that a more competitive landscape would disrupt the market and would bring faster internet to low-service areas.

“The arrival of our networks forced incumbents to invest,” said Greg Mesch, CEO of CityFibre.

“If it weren’t for us, we’d still have copper and poor internet across the country,” he added, referring to the copper wire networks that still run the vast majority of UK broadband networks.

Fiber optic technology, on the other hand, uses tiny threads of glass to carry modulated light along the same underground paths, increasing the amount of data that can be transported.

Greg MeschGreg Mesch, CEO of CityFibre © Charlie Bibby/FT

CityFibre, which is backed by £4 billion from the likes of Goldman Sachs’ West Street Infrastructure Partners fund and Antin Infrastructure Partners, aims to extend its network to 8 million homes by 2025.

It is also bidding for contracts for the £1.5bn grants the government has put out to deploy full fiber optic fiber in rural areas. If it wins this one, it expects to reach 2 million more homes in the same time frame.

The success of any altnet depends on its ability to capture and retain approximately 30 percent of customers in each region, industry insiders say.

In Milton Keynes, where BT has made limited progress with fiber rollout, CityFibre has managed to capture about 20 percent of the market through wholesale deals with players such as Vodafone and TalkTalk; it hopes to reach between 60 and 70 percent.

BT is building 3 to 4 times the pace of its British rivals

But BT has over the past two years accelerated fiber roll-out elsewhere in the UK, committing to spend £15 billion to reach 25 million homes by 2025. Virgin Media O2 is improving its network to reach approximately 15.5 million buildings by the end of 2028, and is seeking investors for a new venture to build a separate fiber network that will connect 7 million homes.

“If you add up all the fiber being built, we can serve the country three times over,” said Dana Tobak, chief executive of Hyperoptic, an altnet that has installed fiber to 750,000 homes in some of the UK’s most populous cities and is being built. backed by private equity group KKR.

“Some will fail and some will make it. Nobody expects more than three or four networks in the long run, so then it just becomes who [fails] and when,” she added.

The fate of some companies depends on whether their lenders’ wallets remain open. Upp, an altnet laying fiber in Norfolk and Lincolnshire, has received £1bn in funding from LetterOne, the investment group founded by Russian billionaire Mikhail Fridman, who recently stepped down after being hit by EU sanctions.

Openreach did not respond to requests for comment. Andrew Lee, Goldman’s chief of telecoms research, was optimistic that Openreach could boost revenue and defend itself against challenger networks as it aims to have the fastest fiber rollout of any company in Europe.

“The overall addressable fiber rollout market has been reduced due to BT’s massive acceleration,” he said, adding that the incumbent’s existing customer relationships give it an advantage.

Homes connected to the CityFibre . networkHomes connected to the CityFibre network © Charlie Bibby/FT

Altnets have already moved to most locations in the UK that hold some commercial promise, although this has left large gaps that have been little addressed by government grants, such as Cambridgeshire and Dorset.

The House of Commons Public Accounts Committee, which oversees government spending, recently said it was “unconvinced that the [government] will deliver on time” on its latest goal of making gigabit broadband available to 85 percent of the UK by 2025.

It called for “significantly more investment” in rural and remote areas, as “the commercial sector is unlikely to be able to fill the gap”.

Meanwhile, private investment and government subsidies remain available for altnets, but the pool of those who can get ahead is shrinking.

“A few years ago you could find anyone with a shovel and he or she would get funding,” said Olaf Swantee, a former EE executive who is chairman of Community Fiber, an altnet based in London. “Today, there is still a lot of money available to those who have proven that they can actually build and get customers.”

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