CityFibre raises funds to expand UK wholesale fiber, buys Extanet

As mobile operators gear up to densify their networks with small cells and even Cloud-RAN, there is a new opportunity for wholesale fiber providers, to enable fronthaul and backhaul. This is propelling fiber providers such as CityFibre in the UK and Zayo in the US to expand their activities in anticipation of new network architectures and eventually 5G. CityFibre plans to raise up to £200m ($258m) through the sale of shares in order to grow its UK footprint, and also to support service providers in the residential space too.

CityFibre aims to raise minimum gross proceeds of £185m ($239m) at £0.55 ($0.71) per share in the new sale. It has the backing of new and existing shareholders including Woodford Investment Management, which has agreed to buy shares worth £36m ($46m). It also wants to raise an additional £15m ($19.4m) through a non-underwritten offer that will be open to certain qualifying shareholders.

The dark fiber company has been offering itself as an alternative to BT for operators and enterprises which want wholesale fiber. It currently covers 42 towns and cities, and aims to grow this coverage to at least 50 by 2020. However, it is also expanding the services it will offer, having run its first fiber-to-the-home (FTTH) project in the northern city of York, where it now reaches 14,000 homes, working with broadband providers TalkTalk and Sky. It now plans to build FTTH networks in 5-10 cities next year to provide an alternative to BT’s wholesale arm, OpenReach, in that sector too.

When regulator Ofcom was conducting its review of BT and OpenReach last year, there was criticism of the service from customers such as Sky and TalkTalk. The regulator stopped short of breaking BT’s retail and wholesale operations apart completely but did impose greater separations and other commitments. But CityFibre and others think the only way to make OpenReach more responsive is to provide more competition. It claims it will enable providers to offer residential speeds of almost 1Gbps, compared to 76Mbps for those using BT’s fiber-to-the-curb network.

CityFibre said that the success of its trials in York had convinced it to pursue the FTTH route and it was now in “advanced negotiations” with Internet service providers in the consumer space, as well as its traditional customers such as MNOs and enterprises wanting backhaul or point-to-point links.

The company also said it was spending £29m ($37m) to acquire another wholesale connectivity provider, Entanet, whose network covers many towns and cities from Edinburgh in Scotland to London. Entanet has about 1,500 channel partners and its buyer believes the merger will generate “synergies” of about £3m ($3.9m) a year within three years. Entanet’s turnover grew 12% last year, to about £35.8m ($46.2m), but it swung to a net loss of £407,000 ($525,000) from a net profit of £2.3m ($3m) in 2015. CityFibre’s revenues were up 140% last year, to £15.4m ($19.9m), but its loss widened to about £12.6m ($16.3m) from £6.4m ($8.3m) in 2015.

CityFibre CEO Greg Mesch has been a strong advocate for the need for new fiber networks, built from the ground up to satisfy rising access and backhaul requirements.

“Using what we have in the ground just isn’t working,” he said earlier this year. “It’s not going to work and we just need to look at the forecasted data speeds and traffic to realise the capacity we need is not in the ground, There has been a fundamental shift and what we’ve found is that demand has now outstripped supply. Today, that demand is for high speeds and low latency and the only way to deliver that is fiber. The model of building on copper is dead.”

New approaches to enable 5G are not all about speeds and capacity. Last year, Openreach started trialling new simplified duct and pole sharing processes with five service providers, responding to operator calls for a streamlined, repeatable deployment process which could enable small cells to be rolled out at large scale and low cost to support densification. The trials, which could benefit EE in future as well as third parties, could also see new fiber being installed, in a way that gives operators greater ability to carry out work themselvePaids, and so encourage expansion of the network to underserved areas.

Callflow, NextGenAccess and WarwickNet are among those trialling the new services, which include faster survey and build – customers can install fiber cables on Openreach ducts and poles, and clear blockages, without additional permission.

As part of its Business Connectivity Market Review last year, Ofcom said BT would have to provide rival operators with access to its dark fiber network in order to increase competition for high speed leased lines for businesses and MNOs.

Although that had been demanded by some providers, CityFibre filed a legal challenge, arguing: “We need to ensure that CityFibre and other fibre optic infrastructure builders can invest against the background of a fair and balanced regulatory regime. We believe Ofcom is implementing poor and inconsistent regulation.”