CityFibre's take-up rate lags altnet average even as it declares profitability

While boosting adoption rates has generally been a struggle for altnets, the biggest among them – CityFibre – seems to be doing worse than its peers, even as the company hails reaching profitability ahead of schedule.

UK-based CityFibre is owned privately by Antin Infrastructure Partners, Goldman Sachs Asset Management, Mubadala Investment Company and Interogo Holding.

This week, the fiber operator published data on its Q1 performance in a press release without releasing its full results. CityFibre said it had reached the breakeven point slightly ahead of schedule, having previously targeted the first half of the year. Still, while the company delivered a positive EBITDA (earnings before interest, taxes, depreciation and amortization) during the most recent quarter, its take-up rate was only 11%.

This is based on the operator's connections reaching 400,000 at the end of Q1, having grown by a sharp 77% from 2023, and premises passed standing at 3.6 million. CityFibre says it is on track to reach its rollout target of 8 million homes by the end of next year and currently counts 3.3 million premises as ready for service (RFS).

According to the company, RFS means residents can receive services "in as little as 5 working days" from placing their order. Premises passed, meanwhile, is a somewhat hazy term applied industry wide to those near a fiber line, but actual connection times have sometimes been known to vary.

Even taking RFS premises as a basis, CityFibre's connection rate is still only 12%, far below what's generally considered the threshold for achieving long-term payback. Nokia, one of the world's biggest vendors of fiber network products, puts that number at 30%. 

For comparison, Openreach reported take-up rates of 34% at the end of 2023. Ofcom, meanwhile, noted that the average rate across providers was 28%, adding that the figures vary widely from below 10% to over 30%. 

Take-up woes

Altnets would argue that it is more difficult for them to grow adoption rates because they need to lure customers away from their current providers, rather than merely converting existing connections. Pointing to Ofcom data, they say it takes a few years for take-up to increase after fiber is installed in an area.

Still, many altnets have fared better than CityFibre, even if they aren't beating Openreach. Put together, altnets had 2 million live connections at the end of 2023, translating to a 15% take-up rate, according to a recent report (PDF) by the Independent Networks Cooperative Association (INCA) – an organization representing altnets – and market research company Point Topic. 

Consulting firm Eight Advisory, meanwhile, said in a report published earlier this week that altnets' adoption rates range from below 5% to over 30%, putting the average figure at 16%. 

For comparison, rival Hyperoptic had 300,000 live connections in October, with 1.4 million premises passed, translating to a 21.4% take-up. Community Fibre, which focuses its rollout on London, had passed 1.3 million premises and established 200,000 connections as of November, giving it a take-up rate of 15.3%. For Gigaclear, the figure stood at 20%, with 100,000 connections and 500,000 premises passed. 

Consolidation approaching

It is worth noting that CityFibre also has wholesale deals with Vodafone and TalkTalk, making it one of the few altnets that have managed to sign wholesale deals with the main Internet service providers, according to Eight Advisory. 

The consulting firm sums the situation up as follows: "The combination of significant capital expenditure to build networks, highly competitive 'overbuild' in specific geographical areas and low take-up in the UK is unlike other European countries."

As it has been said many times before, including by Ofcom, everything points to consolidation being inevitable in the long run. With the regulator saying there are currently more than 100 companies active in the UK market, the only thing that remains unclear is which ones will be left standing long term.

CityFibre is clearly seeking to be one of them, having already acquired Lit Fibre, an altnet with 300,000 premises passed, in March. Greg Mesch, the CEO of CityFibre, told Reuters that more such deals are in the pipeline and the company aims for six to eight more within two years.

Consolidation is not altnets' only worry. Access to finance topped the list of their concerns in a survey conducted by INCA and Point Topic for their report, which predicted that investment is set to "seemingly reduce in scale compared to the past few years."