That has resulted in a slowdown of their broadband fibre network rollouts across the UK and more than 1,250 job cuts industrywide in 2023.
At the same time, total capital expenditure by altnets has increased to between £8-9 billion, said James Barford, head of telecoms at Enders Analysis.
But Barford said that many altnets are now struggling due to tougher financial conditions. He added that deployments have been paused because investors are demanding better performances from their existing footprints, while average take-up rates at some companies were between 10-15 per cent.
In light of this, Barford said that consolidation was sorely needed. However, he added that negotiations will be challenging as some altnets won’t be worth the amount invested in them. Added to that, those companies looking to acquire them will be deciding whether it’s more cost-effective to build or buy areas that don’t overlap with their existing footprints.
Greg Mesch, chief executive of CityFibre, said that the company aims to make as many as five acquisitions over the next 24 months. He said that CityFibre was in exclusive talks with two other altnets, was developing offers for three others and had non-disclosure agreements with six more.
“Investment is drying up, but I think that’s creating the opportunity to consolidate the network,” Mesch said.
Virgin Media O2, which is jointly owned by Liberty Global and Telefónica, secured £4.5 billion in funding for a fibre-building joint venture with InfraVia Capital Partners called nexfibre, which is aiming to reach 5 million homes by 2026. The company also acquired UK broadband provider Upp in September 2023.
Mike Fries, chief executive of Liberty Global, told Morgan Stanley’s European TMT conference in November that the company was looking at “another six or seven” altnets in the M&A market.
Rajiv Datta, chief executive of nexfibre, which has passed 500,000 premises so far and expects to reach 1 million in the first half of 2024, said that it is a “natural home” for a subset of the altnets that are having difficulties with the change in the financial markets. He does not expect a flurry of deal activity within the next six months due to many providers trying to conserve cash and slow down their build to sustain themselves while investors also assess their options.
“There is a spectrum,” Datta said. “There’s some that might have to find solutions sooner. There are others that are fairly well capitalised but have a fundamental business plan problem given the situation.”