CityFibre UK Reject VMO2 Merger Claims and Predict 100 AltNets to Become 1

The CMO of full fibre operator CityFibre, Dan Ramsay, has today told the CEO of ISP Zen Internet, as part of a new interview, that they expect that the c.100 alternative broadband networks in the UK market today to eventually become one single operator. Ramsay separately denied that there had ever been talks of a merger with Virgin Media (VMO2).

In case anybody has forgotten, CityFibre currently hold an ambition to deploy their 10Gbps capable Fibre-to-the-Premises (FTTP) broadband network to cover up to 8 million UK premises (funded by c.£2.4bn in equity and c.£4.9bn debt) – across over 285 cities, towns and villages (c.30% of the UK) – by the end of 2025 (here).

The operator has already passed over 3 million UK homes (Ready for Service) and has an overall build footprint of 3.37m (i.e. not all areas are live via an ISP yet). But CityFibre, not unlike a fair few other operators, has also had a challenging year that saw a sizeable number of job losses (here) and a worrying number of build suspensions due to issues with contractors like Kier Group, Telec etc. (examples here, here).

Despite this, the provider remains optimistic about the future and has previously acknowledged that Mergers & Acquisitions (M&A) may need to play a big role in their growth if they’re to hit their current coverage target. In that sense, CityFibre sees themselves more as being a consolidator than one of the consolidated, which today’s interview piece reiterates.

At this point it’s worth reminding readers that CityFibre, at least for a brief period last March 2023, became the subject of much speculation after a report in the Telegraph (paywall) claimed (here) that VMO2 had held “initial talks” over the possibility of mounting a £3bn takeover bid for the AltNet.

The paper suggested the discussions involved Mike Fries, CEO of VMO2’s co-parent company Liberty Global, and the CEO of CityFibre, Greg Mesch. But the high level of pre-existing overbuild between the two, as well as possible regulatory concerns, always made such a deal seem, at best, difficult to achieve and Dan Ramsay has now put a lid on it.

“You know better than to believe everything you read in the press, I wouldn’t believe that story at all either. We weren’t in active conversations with VMO2 at that stage at all, and so there’s no grounding to that,” said Ramsay in the new interview. In fairness though, the newspaper did say the talks involved Liberty Global’s boss, not VMO2 or even nexfibre itself, and there may well have been informal chats (i.e. not official). But either way, nothing ever came of this.

Speaking of overbuild between rival networks, Ramsay added that they “actively try to avoid overbuilding other altnets for obvious reasons, that’s not good for them or for us. We are about 70% not overbuilt today,” although this figure would be quite different if they were also factoring in Openreach and Virgin Media. Likewise, it’s worth remembering that CityFibre can’t stop other AltNets that do choose to overbuild them.

Ramsay added that there are “good sides to overbuild as well … that is choice and competitiveness in the market, which ultimately is good for UK plc. So it’s a bit more nuanced than overbuild or not, it’s more about the type of overbuild, the timing and how it plays out, that’s probably the challenge for us.”

Speaking of consolidation, Ramsay appeared to agree with Richard Tang that, over the next c.3-5 years, the alternative network provider market would probably end up being whittled down from c.100 players today to just 1, with CityFibre itself leading the consolidation charge. “We won’t end up at the end of this with Openreach, Virgin Media plus five others. We will end up with probably three, I think, because in most mature markets that’s what you tend to see,” said Ramsay.

In our view it will take a lot longer to reach such an outcome and, even then, the market may well have 3 or possibly 4-5 large / large-ish players, but there will still be other smaller fish in the sea, much as there always has been. For example, operators like B4RN are community benefit societies and likely to remain independent, with other operators also filling niches that may not bring much benefit or attraction to the largest players via consolidation.

Similarly, there will be some AltNets where, due to pre-existing overbuild, complexity / cost of integration, leadership decisions or a combination of other factors, it wouldn’t make much economic sense for the biggest players to consolidate them into their own networks. In that sense we still expect to be seeing a patchwork of large, medium and small sized networks surviving past the 5-year mark, albeit somewhat fewer than the 100+ we see today. But for some of those very same reasons, CityFibre may also find it difficult to consolidate their way toward achieving their current build target by the end of 2025.

You can check out Richard’s interview series here, and we’ll paste the latest video below.