CityFibre plans to raise as much as £200 million ($258 million) through the sale of shares and says it will use the money to expand its UK fiber footprint and make a bigger push into the residential market for high-speed broadband services.

The UK operator has for several years been promoting itself as a wholesale alternative to fixed-line incumbent BT Group plc (NYSE: BT; London: BTA) for organizations and retail service providers that want gigabit-speed connectivity. (See CityFibre Aims High in BT Battle.)

Its dark fiber network, which promises wholesale customers more control and flexibility than on BT's services, today covers about 42 UK towns and cities, but the goal is to extend this into "not less" than 50 by 2020.

Having so far undertaken one fiber-to-the-home (FTTH) project in York, in partnership with broadband retailers TalkTalk and Sky , CityFibre also says it will use funds raised from the sale of shares to build FTTH networks in five to ten UK cities next year. (See TalkTalk Unveils Cut-Price Gigabit Service.)

The move will be seen as a much bigger challenge to BT, which has faced criticism from wholesale customers including Sky and TalkTalk over the service it provides.

CityFibre has previously told Light Reading that its strategy is to offer much higher-speed services than BT at competitive prices.

Currently, broadband service providers using BT's fiber-to-the-curb network, including BT's own retail business, advertise a maximum speed of 76 Mbit/s for residential customers.

CityFibre claims it has been able to support connection speeds of nearly 1 Gbit/s over its York FTTH network, which had reached about 14,000 homes in the city last September, according to the operator.

In a press release issued this morning, it said the success of its trials in York had persuaded it to embark on a more widespread rollout of FTTH networks and that it is in "advanced negotiations" with Internet service providers addressing the consumer market.

The statement will fuel speculation that TalkTalk and Sky are looking to develop a much closer commercial relationship with CityFibre and wean themselves off dependency on BT as a wholesale partner.

The rollout of gigabit broadband access networks is spreading. Find out what's happening where in our dedicated Gigabit Cities content channel here on Light Reading.

In a related move that was also announced today, CityFibre said it would spend £29 million ($37 million) on a takeover of another wholesale connectivity provider, Entanet, whose network appears to cover a number of the UK's biggest towns and cities, stretching from Edinburgh in the north to London in the south.

CityFibre said that Entanet currently has about 1,500 channel partners and reckons the takeover will generate "synergies" of about £3 million ($3.9 million) per year within three years.

Entanet's turnover grew 12% last year, to about £35.8 million ($46.2 million), but it swung to a net loss of £407,000 ($525,000) from a net profit of £2.3 million ($3 million) in 2015.

By comparison, CityFibre's revenues soared 140%, to £15.4 million ($19.9 million), while its loss widened to about £12.6 million ($16.3 million) from £6.4 million ($8.3 million) in 2015.

During the share sale, CityFibre said it would look to raise minimum gross proceeds of £185 million ($239 million) at £0.55 ($0.71) per share.

The operator said the capital raised had received the backing of new and existing shareholders including Woodford Investment Management, which has agreed to buy shares worth £36 million ($46 million).

That offer is being fully underwritten by banks including Citigroup, finnCap, Liberum and Macquarie.

Meanwhile, CityFibre wants to raise an additional £15 million ($19.4 million) through a non-underwritten offer that will be open to certain qualifying shareholders.

Today's announcement comes amid a shakeup of the UK broadband market that has already seen BT forced to run its Openreach networks business at arm's length from the rest of the Group.

That "legal separation" was given a cautious welcome by wholesale customers and retail rivals including Sky, TalkTalk and Vodafone UK but has yet to prove it will lead to better competition or spur investment in broadband infrastructure.

BT is making investments in a mixture of G.fast, which boosts broadband connection speeds over copper lines, and FTTH. It aims to reach about 12 million premises with those technologies over the next few years. (See BT to Cover 2M Homes With FTTP in $8.7B Plan.)

But the FTTH network will cover only about 2 million of those premises and the scheme has attracted derision from CityFibre and other critics, which argue that it does not position the UK for the broadband needs of the coming decade.

Virgin Media Inc. (Nasdaq: VMED) is also working on a £3 billion ($3.9 million) expansion of its cable network but those plans are now running behind schedule and could hurt cash flow targets at parent company Liberty Global Inc. (Nasdaq: LBTY), according to reports.

Another company eyeing a bigger role in the UK's broadband market is mobile towers owner Arqiva, which earlier this week acquired a 28GHz license that could support the rollout of 5G-based broadband services. (See Arqiva Bags Extra 28GHz UK License, Eyes 5G Launch.)

— Iain Morris, , News Editor, Light Reading