UK fibre altnet market takes continues consolidating as the merged entity is set to become one of the largest challengers to Openreach
Two of the UK’s largest fibre altnets Netomnia (Youfibre) and Brsk have announced plans to merge – a long awaited move first being speculated on in April this year. The consolidation of the fibre market is widely expected given that analysts have found that two or more FTTP networks now covered 7m UK premises in Q1 2024 and the overbuild only results in one outcome.
The mergers follows similar moves by CityFibre announcing it would acquire Lit Fibre and Virgin Media O2 doing the same to Upp last September. According to the FT (subscription), the deal will involve Brsk moving under the umbrella of Netomnia’s parent holding company, Substantial Group, but it will be run as a separate entity with Giorgio Iovino, Brsk’s chief executive, staying put for now.
Importantly the announcement revealed the merged company will form a new wholesale arm that will be tasked with acquiring other altnets. Last month, consultancy firm Eight Advisory highlighted the problem for UK altnets which are shifting from building networks to filling them with end customers and a key part of the problem to why altnets lag Openreach in takeup is that the UK wholesale model is broken.
The UK consumer broadband market is highly concentrated on five big ISPs, four of which buy wholesale broadband from Openreach. One of the issues identified by the consultancy is that the proliferation of multiple small networks makes it costly and complex for the larger ISPs to work with altnets. Netomnia/Brsk will improve its ability to be more effective in doing wholesale deals. Timing also comes into this because Virgin Media O2 has promised to open up its network to wholesale in 2025 so the altnets are already jockeying for survival.
Jeremy Chelot, chief executive of Substantial, Netomnia and ISP YouFibre will lead the merged entity. “By merging our network expertise and resources, we are creating a powerhouse to deliver an unparalleled internet experience for our customers, driving innovation and further consolidation among altnets,” he said. “The additional capital from our investors and support from our lenders is a powerful endorsement of our vision and ability to execute at the highest level… Today we become the second largest altnet in the UK with 1.5m premises ready for service and a plan to deliver 3m by the end of 2025.”
Brsk CEO Giorgio Iovino said: “The merger is a testament to our shared entrepreneurial spirit and experienced teams that can deliver even more. Together, we are set to deliver a fibre network that is not only fast and reliable but also futureproof, ensuring our customers benefit today and tomorrow. Our joint platform will be where the most powerful internet lives.”
The full-fibre services provided by the two companies will be available to 1.5m premises with 140,000 customers connected already. The group plans to use up to £900m of debt to reach 3m premises and about 500,000 customers by the end of 2025.
In March, Netomnia successfully completed its latest fundraise of £230 million in committed debt financing from a group of six bank lenders, comprised of HSBC UK, ING, NIBC, RBC, Standard Chartered, and UKIB. Its current backers include DigitalBridge and Soho Capital, plus Advencap which is also an investor in Brsk. Happily for investors, the two have not overbuilt each other’s network.