CityFibre bags partnership with Sky

UK fiber wholesaler CityFibre announced today it has secured a partnership with Sky, the country's second largest broadband provider. This will see Sky launch services on CityFibre's network in 2025.

CityFibre said the deal will eventually include 1.3 million hard-to-reach premises CityFibre is connecting under the government-funded project Gigabit.

The news is a clear win for CityFibre, which is among the UK's largest alternative fiber providers, or altnets. These sprung up in recent years to challenge the incumbent Openreach, which is the networks part of former telecom monopoly BT. Sky is the UK's second-largest broadband provider, according to data from ISPreview, narrowly beating Virgin Media O2 while being far behind the market leader BT.

Backed by Goldman Sachs, CityFibre has extended its network to 3.8 million households and seeks to grow this number to 8 million in the coming years. Nevertheless, it has faced lower take-up rates than competition.

At the end of Q1, the number reached 11%. For comparison, Openreach reported take-up rates of 34% at the end of 2023. Ofcom, meanwhile, found the average rate across providers was 28% in a March report, adding that the figures vary widely from below 10% to over 30%. For altnets, it is more difficult to grow this figure than for those offering fixed broadband with older networks as they cannot convert existing customers and have to lure them away from competition. Teaming up with an established broadband retailer might help boost CityFibre's customer numbers.

BT share price falls

The deal, meanwhile, is seen as a blow to Openreach, as Sky is currently their customer. The announcement didn't specify whether or what share of its services Sky will continue to deliver via Openreach, however Openreach's network is far more extensive than CityFibre's with a footprint of 15 million premises passed at the end of the most recent quarter. BT's share price sank following the announcement.

(Source: Google Finance)

What this deal also seems to show is that as an altnet, CityFibre is still capable of competing with the incumbent Openreach despite the Equinox 2 pricing plan approved last year by regulator Ofcom. This slashed wholesale full-fiber prices for Internet service providers (ISPs) using Openreach's network, making it harder for altnets to compete.

Equinox 2 has also been seen as a potential catalyst for consolidation, universally thought as inevitable in the UK market. For illustration, Ofcom said in March there were over 100 altnets active in the UK but only a few players were responsible for most fiber deployment.

Some deals have already been announced. In March, CityFibre announced the acquisition of Lit Fibre from Newlight Partners, adding 300,000 premises to its network. Brsk and Netomnia, meanwhile, announced their merger in June, in a move that will spawn a merged entity with 1.5 million premises passed and 140,000 customers.