Private equity firms face reckoning as £31bn broadband push turns sour
Significant losses and consumer ‘inertia’ drive expectations of consolidation among the ‘altnet’ UK providers
Investors have poured billions into upgrading the UK’s broadband network over the past decade, fuelling a wave of upstart providers that have delivered full-fibre internet to millions of homes.
Goldman Sachs, KKR, Warburg Pincus and Macquarie were among those that raised more than £31bn to invest in what was billed as a generational opportunity to scale up and snatch customers away from the industry leaders, BT-owned Openreach and Virgin Media O2.
Yet after connecting almost 20mn homes with fast internet, according to Assembly Research estimates, these alternative network providers — or altnets — now face a reckoning, with several mired in financial difficulties and struggling for sustainable returns.
The high cost of building out their networks has left the UK’s altnets saddled with net debts that run to £9bn, according to Enders Analysis figures. The altnets collectively posted losses in 2024 that Enders put at more than £1.5bn, as consumer uptake failed to meet what they anticipated.
Robert Grindle, analyst at Deutsche Bank, said the rise in interest rates from very low levels a decade ago had been “a major headwind” that had pushed up costs.
Unexpected “customer inertia” to changing supplier and the “vigour” with which Openreach defended its market-leading position and deployed its own fibre network, which now reaches more than 22mn homes, had also impacted the altnets, he added.
The failure of several of the newer providers to match their ambitious business plans, which predicted widespread customer take-up and high retail prices, has forced significant losses on leading investors and ignited a wave of consolidation with the potential to reshape the sector.
“What’s clear is that a certain level of scale is needed,” said Matt Howett, Assembly Research’s founder. “Not all altnets have been created equal and not all will survive on their own.”
Lenders, including the taxpayer-backed National Wealth Fund, this month wrote down about 40 per cent of their near £1bn loan to altnet provider Gigaclear, while Macquarie-owned KCOM took a hit of more than £500mn as part of a restructuring of its business, a company filing showed.
Macquarie, which is currently trying to sell KCOM, could end up handing control of the company to creditors should the process fail, according to two people familiar with the matter. Macquarie declined to comment.
In the most stark case of financial distress in the sector, London-based G.Network was placed into administration after being bought in January by distressed debt specialist FitzWalter Capital. People familiar with FitzWalter’s thinking said it could look to pick up other struggling players, although the company declined to comment.
Even KKR-backed Hyperoptic, one of the stronger players that serves more than 400,000 customers, is exploring the refinancing of some loans with an aim of securing its future, according to three people familiar with the company. KKR and Hyperoptic declined to comment.
A select few companies continue to expand despite the industry struggles. Warburg Pincus-backed Community Fibre plans to add to its nearly 1.4mn-home fibre network and reach close to 2mn premises to support customer growth, according to people familiar with its thinking.
Financial challenges have fuelled debate about how the industry can achieve long-term stability, while maintaining the low prices for consumers that have been a defining feature of the altnet boom.
Assembly’s Howett said consolidation was a “necessary path forward” to help drive further investment and growth, and “realise effective, long-term competition to Openreach”.
Some argue that the eventual solution will be a trio of national networks made up of Openreach, a VMO2-backed network and the rolled-up altnets, while others believe the best outcome is for VMO2 and its shareholders to strike deals, moving the UK towards a two-player fibre market.
VMO2’s shareholders and partner InfraVia Capital made a first move in February with a £2bn deal to merge their Nexfibre joint venture with fibre network group Netomnia. The enlarged company will service 8mn homes.
They beat competition from Goldman Sachs-backed CityFibre, the UK’s largest altnet, which offered more for Netomnia but could not secure the necessary financing for its bid, according to three people familiar with the matter. CityFibre declined to comment.
CityFibre has touted itself as the player most likely to lead consolidation, but has so far signed only smaller deals.
James Ratzer, analyst at New Street Research, called the Nexfibre-Netomnia merger, which is subject to regulatory approval, a “game-changer for the UK wholesale market”.
“It leapfrogs Nexfibre to become the UK’s largest altnet,” he said. “Acquiring CityFibre is the next logical step and then BT’s Openreach has serious wholesale competition on their hands.”
VMO2’s joint owner told the FT last month that the deal could open the door to further acquisitions.
However, the UK’s Competition and Markets Authority is likely to consider whether the removal of Netomnia, a key market competitor, might allow BT and VMO2 to raise prices for customers.
“The overlapping networks between buyer and seller will prompt the CMA to look carefully at the deal to ensure that there will not be anti-competitive effects that will lead to higher consumer pricing,” said Karen Egan, head of telecoms at Enders Analysis.
“However, the companies will argue that the increase in wholesale competition over a wider geographic area will mitigate these concerns.”
Industry watchdog Ofcom has struck a fine line, with its director of networks and communications Natalie Black telling analysts last month that the deal raised “serious questions” for authorities to consider.
Ofcom said its focus was on “promoting sustainable competition, not on prescribing what the final structure of the market should be”, adding that any decision on the Nexfibre-Netomnia deal was a matter for the CMA.
The CMA declined to comment.