UK altnet (alternative network) service providers are shifting focus from putting fiber in the ground to acquiring customers – the UK fiber market is shifting from being an engineering challenge to a commercial one.

Leading independent fiber operator CityFibre has stated that it is ‘pausing its Swindon roll-out. This decision comes as part of an ongoing review of prioritization of our deployment locations, given the pave and scale of our nationwide roll-out.’

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A CityFibre spokesperson said: ‘Any areas we no longer intend to reach as part of our commercial roll-out are communicated to BDUK (Building Digital UK, the government unit responsible for promoting and investing in broadband to harder to reach locations) via the normal channels. I’m sorry we won’t be able to apply full fiber to Wroughton as part of this current roll-out, but there is a possibility we will return to finish South Swindon and Wroughton at a later date.’

This latest press of the pause button by CityFibre follows a headcount reduction early in the year reported as up to 400 out of 2,000 posts, as well as problems with network construction sub-contractors like Kier and Telec Networks.

Are fiber investors ‘getting twitchy’?

With CityFibre and CommunityFibre both apparently supported by substantial financial backing, the implication is investors are starting to ask ‘when do I see a return?’ Hence, the path to breakeven (not even profitability) seems to be the strategic challenge.

With 150 or so altnets up and down the UK, consolidation is inevitable – the question is what can they be worth, if anything? Unless they offer unique or complementary coverage, or have strong local market penetration to reach positive cashflow, many look like sitting ducks.

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GlobalData Principal Analyst Rob Pritchard observed: “Having noted just as recently as 30 November that the change of focus at London-based altnet CommunityFibre from building out its fiber network to loading traffic onto it with intensified customer acquisition activity, was an early warning sign, the worry level must be going up again in this sector.”

There is a rule of thumb that a penetration rate of 30% is needed for altnets to become commercially viable, many – if not most – do not attain this benchmark, but Openreach is reported to be at 33% and CityFibre about 30% – the difference being that Openreach has a substantial base of legacy revenues whereas CityFibre has started from scratch.

Pritchard continued: “This is not just annoying for the people of Swindon, it is of concern to the whole sector. Disruption creates customer nervousness, on top of many cases of annoyance at disturbances and disruptions caused by cable laying. If even CityFibre is tightening its belt, then the only obvious fiber winners appear to be BT/Openreach and Virgin Media O2 – they have deep pockets and cashflow.”