Rural UK Broadband Altnet Gigaclear Hunts Buyer to Tackle £1bn Debt
A new report has claimed that Abingdon-based broadband ISP Gigaclear, which has built a full fibre (FTTP) network across 612,000 premises in rural parts of England and is home to c.160,000 customers, have begun the process of hunting for a buyer as one of the preferred options for tackling their £1bn debt mountain.
The provider, which back in 2010 took on the huge challenge of trying to expand FTTP across rural areas using a commercial approach, currently holds an aspiration to extend their network coverage to 1 million premises. But like so many other network operators they’ve more recently had to scale-back their build and cut jobs, due to the pressures from high interest rates, rising build costs and a highly competitive environment (here and here).
Gigaclear’s main focus today is on delivering their publicly subsidised Project Gigabit contracts (i.e. “ultra rural areas“) for the government, while also trying to boost customer take-up through a stronger focus on commercialisation of the network they’ve already built. But at the same time they’ve still got a huge debt pile to tackle and efforts to raise fresh investment have yet to bear much fruit.
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Suffice to say that there was nothing particularly surprising about the FT‘s (paywall) latest report, which claims that the provider has launched a sale process and this week started sending out “teaser documents” to potential buyers. Failing that, Gigaclear may have to consider writing down its debt (painful for creditors like NatWest, Lloyds and the National Wealth Fund), a debt-for-equity swap or seek a further cash injection from investors.
One thing to keep in mind here is that, despite Gigaclear only having covered 612,000 premises, the operator’s strong rural focus means that their physical network size is actually, geographically speaking, quite large and most of that exists outside of busy urban areas. But New Street Research is said to have estimated that Gigaclear could fetch between £500m and £700m.
The hope is that the provider will be able to avoid a restructuring process that results in them doing the first major write-down of debt in the alternative network (altnet) sector, which could fire the starting pistol on similar outcomes elsewhere.
A spokesperson for Gigaclear said:
“Our existing stakeholders remain supportive of the business, and we continue to work constructively with them to explore a range of options that support the long-term success of Gigaclear and deliver the best outcome for all parties.”
However, potential candidates for a consolidation agreement, such as CityFibre, may well still seek a reduction in the altnet’s debt levels before doing a deal. Meanwhile, Gigaclear insists they’re continuing to deliver “strong operational performance” and are “delivering on all key financial metrics”.
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On the surface, CityFibre’s urban focus should be a good complement for Gigaclear’s more rural centric network, but there are some other potential caveats to consider. The rural provider’s network infrastructure might well require some expensive upgrades to match CityFibre’s latest XGS-PON network, and Gigaclear’s standard pricing (after discounts) tends to be much more expensive than CityFibre’s equivalent plans.
None of this should overlook the fact that Gigaclear has still managed to deliver an impressive full fibre network in some of the country’s most challenging rural areas. So, whatever the future holds, this will continue to exist and has had a hugely positive impact on many of the communities served.
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
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That’s a mind boggling high cost per prem on a “commercial” model. And surely the size of the network doesn’t matter to a potential buyer, its the customer base and coverage. The more I read about the scale of debt, the lack of customers and ultra cheap packages across the alt net space the more I start to agree with Phil Jansen’s it will all “end in tears” forewarning.
Don’t forget that a significant amount of those premises passed were part of a subsidised build as well. Absolutely mind boggling.
They expected a prolonged period of being the only full fibre supplier to many of these areas. The business case depended on it.
I doubt if we are going to end up with a load of dead fibre in the ground. Someone will come along and buy the assets up cheap and run it profitably. The Original investors are going to the biggest losers, indeed perhaps it would be better to call them “benefactors” rather than “investors”.
The physical size of the network will actually lead to higher maintainance costs.
I suspect everyone will be watching this very closely, especially the other investors in Altnets.
But I’m not convinced there should be great panic. When you look at the cost of openreach fttp prices even after their discounts announced yesterday their wholesale prices are still almost double that of the Altnets, certainly on the higher speed services.
Openreach need to maintain their profitability and cannot cannibalise their prices too much.
The Altnets need to do more to increase their revenues. Those that don’t will be sold at bargain prices I suspect.
Nearly 2 years old now, but liabilities were around £846m in December 2023.
December 2024 figures are due soon but liabilities will presumably be even greater.
Based on the £2bn being mooted for Netomnia, and factoring in Gigaclear’s build being rural, New Street Research’s £700m seems reasonable. A loss for debt holders.
Even adding another £150m to be generous and there’s basically no return for equity holders. Anything more than that seems fanciful.
Who said the debt would go anywhere? The buyer will still need to service the debt.
£1600 of debt per premises passed, or £6250 of debt per actual connection.
Assuming a monthly net profit of £10 per connection, and they don’t gain any more customers, it’ll take over FIFTY years to clear just the capital amount of the debt (much less any interest).
Tears indeed, Mr Jansen. Tears indeed.
£6.25k per customer is the right way to look at it. That’s just debt, not equity. Hard to understand how debt got themselves exposed to this level.
Netomnia (£2bn / 400k customers) is £5k value per customer and easier to understand.
Nice to see some public valuations at these numbers though.
This is exactly how lenders make money. Firstly bank creates lets say £100m of virtual money on account, then debtor is re-paying in real money. Just search for “Money as a debt”
@Anon my only issue with using “price per customer” when we are talking about CityFibre is that as a Wholesale Only network, they don’t want to complete with the ISPs operating on their network so they sell off the ISP(s) of any vertically integrated networks they acquire, like how they did with Lit Fibre, they brought the network and then sold off the ISP arm of Lit Fibre back to its founders.
So while they will be acquiring wholesale line rentals of existing customers of the network, they are also “opening the doors” to customers of other ISPs that are currently using Openreach.
One of the “issues” with the I’ve come across with recently having having Netomnia go live near me is that they are literally the new kid on the block and no one knows about them (and imo, it doesn’t help that have have multiple retail ISPs further diluting brand awareness, for example at my house the retail ISP is brsk, but just a few miles away at my brother house its YouFibre).
So in a way CityFibre don’t need to worry about marketing towards consumers, they can leave that to their partner ISPs to do (In the adjoining small city, which is covered by CityFibre, I’ve already seen large billboard adverts from Sky promoting their headline speed of 5.5gig), they don’t need to get past consumers being wary of this new unknown company, they have already heard of Sky, Vodafone, TalkTalk (though that last one might not be the best example).
So, imo, for CityFibre it’s more about premises ready to serve than existing customers, as that’s the figure they can tout to their real customers (the ISPs) and they will be offloading existing retail customers anyway.
…Almost as if Government should leverage cheaper borrowing costs vs future tax returns and economic benefits, for serious infrastructure isn’t it? Now how to get decent value-for-money on public spending. Since digging a mere trench costs what per mile when Openreach are doing it?
CityFibre I think have their ideas on Netomnia, it would do wonders for their target.
How does CityFibre afford to buy Netomnia? They just secured more money to continue builds but that was only £2.5 billion i think….
If they bought Netomnia £2 billion they will struggle to continue
The extra money was for business expenses a and to buy not build, Tyler. They’re building very little that’s not taxpayer subsidised for the foreseeable.
@Tyler IIRC CityFibre is focusing on expansion via mergers and acquisitions and less on new network builds However I agree, purchasing Netomnia is a huge chunk of their most recent funding round, but would mean biggest Altnet purchasing the 2nd largest and give them another 2.8 million~ serviceable premises to wholesale out to the likes of Sky, Vodafone, Zen, etc. So it might be worth it to them.
I’m just hoping its CF who purchase Netomnia rather than VM, simply because I hate VM with a passion, basically anyone but VM. I would rather go back to Openreach than be a VM customer 😛
Asking someone to pay £2B isn’t the same as what they might end up paying… before you consider any transaction would be equity & cash, not just cash
Prediction is Netomnia will go for considerably under £1B, to CityFibre excluding YouFibre (remains a retail ISP). The dance with VMO2 is just to try to push that number higher…
Gigaclear is worthless (in a sale) without resolving debt pile beforehand, predict the goto-market move is to pressure debt-holders to renegotiate debt for equity now before interest payments cripple business… then sell
@greggles Given that VMO2 are circling Netomnia with a £2bn valuation and CityFibre have just refinanced for around the same amount, I think that’s a non starter right now. Obviously things might change.
First speculation about Virgin Media in talks with Netomnia, now Gigaclear looking for a buyer, not forgetting TalkTalk recently. It’s all beginning to kick off, sales and consolidation looking increasingly more likely as has been forecast for some time now.
There were many stories regarding CityFibre and Netomnia earlier this month including CityFibre trying to raise more funding to complete the deal. There’s also a lot going on that hasn’t been published.
Either that or the Economic bubble has started to rupture? FTTP builds are becoming increasingly more expensive the further out some companies go, those who choose to build rural are beginning to realise out in the sticks no one can can hear you scream?
The only realistic proposition is, and always was, consolidation.
This is a lesson we already learned back in the days of cable – there is a reason today we have ‘Virgin Media O2’ – and not Eurobell, Telewest, NTL and so on and so forth.
There was only every one end point here – other than edge cases, all of the operators being turned into one in the end is how it will go and was obvious to some of us from the outset. You only had to look at the build cost, the projected revenue based on absolute fantasy numbers with minimal to no expectation of cost changes or increased competition to know the business plans made zero sense.
Even within a cluster we’ve seen consolidation – the absolute shambles of the likes of Jurassic Fibre merged into one (badly, and frankly in a very broken manner) with the others funded from the same source is one such example. Now take those and further consolidate.
It should be obvious that when your build cost is subsidised and you STILL have to keep a customer for decades to break even it won’t work. The worst thing is that many of these companies were badly run to begin with and missed some great opportunities even when people (like me) had meetings with them early on and told them what to target – they scoffed, ignored, and then a few years later Virgin and Openreach have come along and taken the opportunities they failed to take.
Recently, the Chancellor pushed Pension funds to invest more in the UK, yet it is the pension funds – and ultimately the pensions themselves – who will take the hit here.
The estimated value of the business seems a little optimistic, but there are funds out there that will take the bet on the discounted assets. The key to a takeover happening will, however, be the outcome of the due diligence. There will be a cost to integrating, which, if there are insufficient savings to be made, might be enough for potential buyers to walk away unless the asking price is adjusted downward.
Pension funds are supposed perform due diligence checks before investing in anything. You can hardly blame the current chancellor for their poor choices here. There are plenty of good UK companies to invest in.
Pension funds have one sole function: to grow the pensions. The chancellor is 200% to be faulted for turning it into a failed political tool causing detriment to anyone holding a pension. Meanwhile she’s literally dodging taxes while massively hiking it for everyone else. I fully dread to see the next disaster budget and wouldn’t be surprised if it said they will tax going out your front door (indirect taxes on it are already rumored)
@Winston Smith:
It is the Chancellor and this government that are having to strong-arm fund managers into investing in risky and overvalued assets because of the mismanagement of the economy that funds would not otherwise make because of prevailing economic and financial conditions, and all because of the election campaign investment promises attached out of thin air.
@John:
Indeed.
I just went through Lightspeeds papers and seems that they are losing tonns of money. I honestly dont understend how investors are burning that much cash and just keeps going. To break even they will need 2-3 more years. Many altnets in the same situation.
One thing going for Gigaclear in comparison with some of the other Altnets is very low FTTP competition, other than a limited amount of predatory Openreach overbuild. Crazy high per-premise costs, and pricing probably capped by 4/5G competition but maybe more pricing control than some of the others?
Gigaclear got BDUK money to build North Newington near me yet Openreach beat them to it with their own commercial build.
what’s “predatory” about Openreach choosing to upgrade their existing network? They are the incumbent operator in all parts of the UK except Hull.
Openreach’s customers (the ISPs) would also expect their supplier to offer the best possible service to them and their end users. Why would either company want to willingly lose customers to Gigaclear?
Nothing that predatory about it. Openreach should rightfully be upgrading their own network.
The only thing that is slightly “predatory” is the fact that Openreach have direct access to any works requests that are being made through PIA, so they can see where altnets are looking to build, before they even put a spade in the ground. This happened in my area where Openreach came in and deployed fibre to the whole village in about a month, coming online several months before Gigaclear, despite Gigaclear completing most of the ground works half a year before. Openreach really are operating a well oiled machine!