True to its name, Cuckoo Broadband is dropping its eggs into someone else's nest. The young broadband company has found a new home within Giganet, a rival UK operator that boasts a footprint of 9 million properties (although a much smaller number of customers, obviously) following the takeover announced this morning. While not a deal that will upend the sector, it is a sign of things to come in a UK broadband market now overflowing with fiber investors and overripe for consolidation.

Giganet is backed by Fern Trading Limited, a company with a diverse range of interests that has injected £250 million (US$288 million) into the small but ambitious operator. Using those funds, it aims to connect roughly 300,000 of the UK's 27.8 million homes to its own full-fiber network and is targeting parts of Dorset, Hampshire, West Sussex and Wiltshire where there is limited risk of "overbuild" (when two or more networks serve the same homes), CEO Jarlath Finnegan recently told a Telecoms.com podcast.

Figure 1: When Cuckoo met Giganet: Pictured from left to right are Cuckoo CEO Alex Fitzgerald, Giganet CEO Jarlath Finnegan, Cuckoo VP of Products Tommy Toner and Cuckoo VP of Technology Dan McClure.
(Source: Cuckoo Broadband)

But under wholesale arrangements, Giganet is also using infrastructure built by BT's Openreach unit and CityFibre – the largest of the UK "altnets" (alternative networks) – to offer competitively priced broadband services to UK consumers. On its website, before today's deal was announced, it was laying claim to a coverage area of approximately 8 million properties.

Far less is known about Cuckoo. Founded just before the pandemic started by Alex Fitzgerald (CEO), Dan McClure (VP of technology) and Tommy Toner (VP of products), it raised about £4.8 million ($5.5 million) from investors that year and is marketing low-price services with contract lengths starting at just a month (more established operators typically tie customers to much longer deals).

Unsurprisingly, with a name like Cuckoo, it has a cheeky, light-hearted approach to marketing, offering an "eggspress" Wi-Fi service – among other products – and noting in today's update that Giganet will take Cuckoo "under its wing" (the website is full of bird jokes). Besides doing that, Giganet will also apparently adopt Cuckoo as its main consumer-facing brand, retaining the Giganet name for business customers.

Weakening BT

Throughout Europe, money has poured into fiber networks as many infrastructure funds, noting the importance of broadband networks during the pandemic, decided they were a safer long-term investment than government bonds. CityFibre is backed by Goldman Sachs, for instance. BT, the UK's former state-owned telecom monopoly, also came under pressure to upgrade its copper-based lines from government authorities worried the country is falling behind other parts of Europe on full-fiber rollout.

Yet still unclear is how disruptive Giganet, Cuckoo and other UK altnets – of which there are literally dozens – can be in a fixed-line sector that has previously been dominated by BT and Virgin Media (now Virgin Media O2 following its merger with the mobile operator), a rival that has traditionally used coaxial cable to support broadband services.

Along with government pressure, the competitive threat posed by CityFibre and others has clearly spurred BT to embark on a major rollout of higher-speed broadband technology. The Openreach full-fiber network had passed nearly 8 million properties at the end of June and BT aims to reach about 25 million in the next few years, giving it near-nationwide coverage. The danger is that a flock of altnets is left fighting over the broadband scraps.

BT CEO Philip Jansen has recently been quite disparaging about the altnet challenge. "On overbuild, there is lots of building going on but not much connecting," he told analysts on a call in July. "Everyone is realizing there will be a lot of trouble for some of the altnets. If you add up everyone's ambition, their stated aims, the amount of money being raised, it is clear a lot of people won't make it."

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Of course, Jansen would say that. Unless the UK's numerous altnets fail en masse, BT seems bound to be weakened in the next few years as some of the challengers nibble into its market share – even if it remains by far the biggest operator. Converting customers on older broadband products to new full-fiber packages is a strategic priority. When Openreach last reported results, just 24.6% of homes passed by full fiber had subscribed to a service (including wholesale). The comparable adoption rate for the overall broadband business was about 63%.

The big unknown is how many parallel networks are commercially viable in one area. Nokia, arguably BT's most important full-fiber supplier, reckons average payback on a full-fiber deployment takes between 12 and 14 years if the take-up rate is about 30%. If the figure is likely to be much less, its typical advice is not to bother.

One scenario envisaged by Finnegan is a wave of consolidation between smaller altnets that leaves the UK with three or four big providers – Openreach, CityFibre, Virgin Media and an entity that has taken shape by piecing together altnets serving distinct areas. It is possible to see the merger between Giganet and Cuckoo as a first step in this process of building a fiber jigsaw.

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— Iain Morris, International Editor, Light Reading