UK fibre pain is teachable moment for infra funds

Liberty Global

05/09/2025 10:40

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Jennifer Johnson

LONDON, Sept 5 (Reuters Breakingviews) - Some of Britain’s so-called altnet broadband providers are approaching a cliff edge. High interest rates, coupled with lower-than-expected demand for superfast fibre internet, mean that debt restructurings are now firmly on the cards. Larger players and incumbents like Virgin Media O2 could pick up some discounted assets. The episode should provoke a moment of reflection for investors in infrastructure – a concept that has at times been stretched to breaking point.

Britain has around 100 altnets, according to a recent report by business-focused telecommunications provider Neos Networks. The name refers to a relatively young group of upstarts that raised money to put fibre in the ground over the past decade or so, aiming to fill the gap left by BT’s BT.L initially slow-moving rollout. Altnets raised over 18 billion pounds ($24 billion) in announced funding between 2020 and June this year, reckons Enders Analysis. Some of the bigger names, like CityFibre and Community Fibre, managed to generate positive EBITDA in 2024.

But that’s not true for the whole cohort. And, as Enders Analysis points out, positive EBITDA is a long way from generating free cash flow, partly because of heavy capital expenditure requirements. Interest costs are high given the rise in rates in recent years, while debt and equity funding seem harder to come by for smaller players. Nearly half of the altnets surveyed by Neos for a recent report said it had become more difficult to secure financing over the prior year, with high debt costs cited as the leading cause. Research outfit Point Topic last year found a measly 15% take-up rate for a sample of 16 altnets, suggesting slower-than-expected demand.

Lenders including NatWest NWG.L and Lloyds Banking Group LLOY.L have set aside money for possible loan losses in the sector, while operators including Gigaclear are talking to lenders about how to solve a funding shortfall, the Financial Times reported last week. Liberty Global’s LBTYA.O boss Mike Fries even said in June that the UK government was anxious about altnets failing and that Virgin Media O2, his company’s joint venture with Spain’s Telefónica TEF.MC, could step in with acquisitions.

That’s a potentially exciting prospect from the buyers’ perspective, especially if deals happen after some debt has been wiped out. Taking on heavily restructured assets could potentially mean scooping up miles of fibre for less than the cost of building it. CityFibre also seems to be shaping up for consolidation. The group – backed by Goldman Sachs Alternatives, Antin Infrastructure Partners and Mubadala Investment Company – in June raised 2.3 billion pounds of debt and equity, with about a third earmarked for M&A.

Mass restructurings and consolidation would see many equity holders suffer losses. That could include players like Infracapital, an arm of M&G MNG.L, which backed Gigaclear. It’s just one of many infra investors that flocked to the sector in a move that now looks ill-judged in some cases. Infra assets are supposed to be steady, low-risk earners that customers have no choice but to use. Altnets have turned out to be anything but.

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Rising revenue at two of the potential UK altnet consolidators https://www.reuters.com/graphics/BRV-BRV/movadbodypa/chart.png

Rising revenue at two of the potential UK altnet consolidators https://www.reuters.com/graphics/BRV-BRV/movadbodypa/chart.png

(Editing by Liam Proud; Production by Oliver Taslic and Streisand Neto)

((For previous columns by the author, Reuters customers can click on JOHNSON/Jennifer.Johnson@thomsonreuters.com))