Fast internet: CityFibre has committed to spend between £500million and £700million building a new ultra-fast broadband network for five million homes and businesses in the UK

SMALL CAP SHARE IDEAS: CityFibre steals march on BT

CityFibre Infrastructure Holdings has stolen a march on BT in a David versus Goliath battle over Britain’s fibre network infrastructure.

The company, valued at less than £400million, has committed to spend between £500million and £700million building a new ultra-fast broadband network for five million homes and businesses in the UK.

The announcement of planned expenditure of that sort would normally result in the share price of a small cap diving, but the reverse happened, thanks to the involvement of mobile phone network giant Vodafone.

Fast internet: CityFibre has committed to spend between £500million and £700million building a new ultra-fast broadband network for five million homes and businesses in the UK

Fast internet: CityFibre has committed to spend between £500million and £700million building a new ultra-fast broadband network for five million homes and businesses in the UK

Phase one will see the construction in 12 cities of fibre-to-the-premises networks (FTTP) capable of carrying one gigabit per second of data to the door of users.

Vodafone has said ‘I’ll have some of that’ and effectively underwritten the project. It will have exclusive rights to market ultrafast consumer broadband services for 10 years, after which CityFibre will be free to lease out the network capacity to Vodafone’s rivals.

Over 20 years the first phase of the agreement to connect one million homes is estimated by the CityFibre to be worth more than £500million in total revenues, thanks to Vodafone’s commitment to a minimum volume guarantee of 20 per cent of the homes that could potentially connect to the network.

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The agreement with Vodafone has an option to expand coverage to five million homes by 2025.

Vodafone said the partnership with CityFibre represented ‘one of the most significant developments in UK telecommunications since the launch of ADSL broadband around 17 years ago’.

The new network would deliver 50 per cent of the UK government’s target of ‘full fibre’ to 10million homes and businesses as well as providing high-capacity backhaul connections required for the next generation of 5G mobile services.

Meanwhile, dear old BT – well, some would argue it is dear and it certainly is old – is still calling for support for its FTTP plans.

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At the end of last month its Openreach broadband arm published the initial results from a major consultation process with the UK’s broadband providers.

Openreach wants to build an FTTP network across the UK, and communications providers such as Sky, TalkTalk, Vodafone and Openreach’s parent company BT broadly agree that this would safeguard the UK’s position as a leading digital economy.

The catch is that Openreach would obviously want to make the proposition economically viable; to do so, it says a number of key enablers will need to be put in place through close co-operation among the communications industry, the industry’s watchdog Ofcom and the government.

Openreach estimates that building FTTP connections all the way to ten million front doors would cost in the region of £3billion to £6billion, so deciding how that investment can be recovered fairly through wholesale pricing will be critical to making a commercial case work, it said.

CityFibre seems to have already found a way, though.

Greg Mesch, CityFibre’s chief executive, said the partnership would unlock the UK’s full fibre future and establish an unassailable wholesale infrastructure position across 20 per cent of the UK broadband market.

'Significant': Vodafone has effectively underwritten the project

‘Significant’: Vodafone has effectively underwritten the project

Nick Jeffery, Vodafone UK chief executive added: ‘The UK has fallen far behind the rest of the world, trapped by the limited choice available on legacy networks.’

CityFibre’s joint broker, Liberum Capital, has a target price of 80p for the London-based firm, which is currently trading at around 60p.

‘The partnership clearly positions CityFibre as the leading UK provider of full fibre infrastructure for home connectivity, while helping enhance its metro, business and mobile tower businesses. Phase one of the roll-out is expected to be largely financed with available funds and a new debt package to be secured next year,’ the broker said.

‘With both Vodafone and CityFibre clearly interested in pushing onwards towards 5million homes fairly soon, the total revenues from this partnership could be significantly higher during this period,’ the broker added.

It’s a shot across BT’s bows, and a neat riposte from Vodafone to BT’s acquisition of EE, which saw the telecoms heavyweight’s return to the world of mobile phone networks.

Competition: Openreach

Competition: Openreach

‘Whilst any large-scale fibre deployment is by nature a lengthy process, the equivalent of today’s announcement, in telco time-terms, is that Vodafone is lighting a firework and preparing to enjoy the spectacle that unfolds – one which will reward on multiple fronts,’ suggested Deutsche Bank.

‘BT’s acquisition of EE is seeing the UK market move towards convergence products which have proven popular (and deflationary) in other markets,’ Deutsche noted.

CityFibre’s nominated adviser finnCap was predictably effusive.

‘This is the execution of a consistent and very clear strategic direction, which will now deliver to a grateful UK starved of appropriate bandwidth,’ it said.

‘We expect Vodafone will be the first major service provider to sign up, and all others will follow. Notably, the deal is silent in mobile, which leaves another whole tranche of network utilisation to be explored,’ finnCap concluded.

Posted on; DailyMail>>

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