CityFibre Aims for Growth Amid Funding Challenges
CityFibre, the largest alternative network provider in the UK, is setting ambitious targets to increase its subscriber base to 1 million by year-end. The company, known for its role as an altnet, is actively navigating a complex financial landscape while also seeking to acquire £1.5 billion in funding to bolster its expansion strategies.
Expansion Plans and Customer Targets
Founded in 2011 by CEO Greg Mesch, CityFibre has outlined plans to grow its customer base by 500,000 through a combination of strategic acquisitions and a partnership with Sky, established last year. The company’s current network reaches approximately 4.3 million homes; however, its existing subscriber count sits at a modest 518,000.
As part of its strategy, CityFibre is projecting a significant increase in customer additions, targeting approximately 181,000 new clients this year, with an aim to further expand through mergers and acquisitions (M&A). In 2025, the company hopes to add 150,000 customers via acquisition efforts.
Financial Strategy and Funding Challenges
To back its growth ambitions, CityFibre is looking to raise at least £500 million from current investors, including Goldman Sachs and Mubadala, a sovereign fund from Abu Dhabi. Additionally, the company is in negotiations to secure £1 billion in debt from financial institutions such as NatWest and Société Générale, discussions that began in October.
Despite investor enthusiasm for altnets in recent years, customer acquisition remains a significant hurdle. Many companies aiming to challenge BT’s Openreach and Virgin Media O2 have faced difficulties in enticing customers to switch services. The current cumulative losses across the altnet sector have reached £1.3 billion in 2023, according to consultancy Enders Analysis.
Concerns and Market Analysis
In its updated accounts for 2023, CityFibre highlighted a “material uncertainty” regarding its financial viability without additional external funding, warning it could exhaust its resources by mid-2025. However, the company asserts it is in a “strong position,” having generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of £5 million last year.
Despite these assurances, market analysts are skeptical about the feasibility of reaching the outlined customer targets, particularly in relation to the deal with Sky. Under the terms of their agreement, Sky has the option to leverage CityFibre’s infrastructure for its 5.7 million customer base, albeit without committing to minimum usage volumes. This ambiguity raises questions about the potential impact on customer growth.
James Ratzer from New Street Research remarked on the challenging outlook, stating that, given past customer addition rates, the projected increase to 480,000 new subscribers in 2025 appears ambitious. Additionally, Karen Egan, head of telecoms at Enders Analysis, emphasized that meeting these goals will likely depend on the consolidation of smaller altnets within the sector. Yet, consolidating remains complicated by a prevailing lack of appetite among smaller altnets to pursue merging activities.
Future Outlook
Despite the hurdles, CityFibre remains determined to expand its infrastructure, planning to connect an additional 1 million homes annually, with a focus on acquisition-driven growth, targeting 70% of this expansion through acquisitions this year. However, the company has only completed one acquisition since 2020—the £80 million purchase of Lit Fibre.
CityFibre aims to achieve its long-term vision of connecting 8 million homes by 2029, a goal that industry observers, including analysts from Assembly Research, find optimistic, given the current economic climate and funding realities.
As CityFibre pursues its aggressive growth strategy, the company’s ability to navigate the funding landscape and effectively engage customers will be critical for its long-term success.