UK's Gigaclear Raises $46M for Rural Gigabit

A UK broadband company called Gigaclear says it has raised another £30 million ($46 million) from investment groups Prudential Equity Group LLC and Woodford to support its deployment of a gigabit-speed network in rural communities.

The company is one of several new players aiming to challenge the infrastructure monopoly of UK fixed-line incumbent BT and is targeting a market of 1.5 million households and businesses outside urban areas.

Financial services giant Prudential has stumped up £20 million (US$31 million) in funding, while existing Gigaclear shareholder Woodford Investment Management has committed another £10 million ($15 million) to the venture.

The new funding comes on top of a £6.5 million ($10 million) tranche that Gigaclear raised in February from a number of private and institutional investors, including Woodford and Forward Private Equity, and £5 million ($7.7 million) it received in July 2014.

Gigaclear has now raised a total of £50 million ($77 million) in funding from its various sources.

Nevertheless, while UK regulatory authorities and consumer watchdogs may welcome more infrastructure-based competition, these funds are unlikely to go far given the eye-watering expense of laying fiber networks.

In February, Gigaclear acknowledged that its £6.5 million ($10 million) tranche of funding would enable it to reach only another 6,000 homes and businesses -- a tiny fraction of the 1.5 million premises in rural underserved communities.

Gigaclear currently passes 7,000 UK premises but is in the process of extending networks to another 8,000. The company now has about 2,500 customers and has signed up another 3,000 to services it is rolling out.

However, based on a very rudimentary analysis of Gigaclear's previous calculations, an additional £30 million ($46 million) would allow the operator to reach about 27,700 new homes and businesses, while £50 million ($77 million) would give it an addressable market of about 46,150 premises.

To extend networks to as many as 1.5 million premises, the company would need to spend more than £1.6 billion, assuming the cost per home passed continued to work out at £1,083.34 ($1,670.54), as Gigaclear's February disclosures implied.

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.

Gigaclear is not the only company looking to spoil BT Group plc (NYSE: BT; London: BTA)'s broadband party, although other investors have their sights set on more densely populated communities where deployment costs appear lower.

In York, a joint venture involving CityFibre , Sky and TalkTalk is building a fiber-to-the-home network covering 20,000 premises at an estimated cost of £500 ($770) per home passed. (See TalkTalk's Small Fiber Beginnings.)

Sky and TalkTalk already operate the UK's second- and fourth-biggest broadband businesses respectively but rely unhappily on wholesale arrangements with BT.

TalkTalk, in particular, has repeatedly lashed out at BT's wholesale pricing policies, insisting the incumbent is preventing rivals from competing effectively by setting wholesale prices too high or retail rates too low.

Meanwhile, CityFibre has built fiber networks in a number of UK cities and towns and sees an opportunity to become a major wholesale rival to BT by offering higher-speed services at competitive prices. (See CityFibre Sees Backhaul Interest From O2, Vodafone and CityFibre Aims for BT's Wholesale Business.)

Reporting results for its recent financial year last week, BT claimed to have enjoyed its best-ever quarter for fiber broadband adoption in the January-to-March period, adding 266,000 fiber retail customers to give it 3 million in total. (See BT Flags Best-Ever Fiber Broadband Quarter.)

With about 39% of its broadband retail customers now using fiber services, the operator also said it had scooped nearly half of all new customers signing up to broadband deals in the UK during the first three months of the year.

Responding to questions about the suggestion BT should be "structurally separated", with its Openreach access division spun off as another company, BT executives defended the current system of "functional separation" -- under which Openreach is allowed to operate as a standalone entity in the BT Group -- during an earnings call with analysts.

"We are a very digitally evolved economy … and that really demands an infrastructure that can keep up with that," said CEO Gavin Patterson, according to a Seeking Alpha transcript. "The best way of doing that is through the model we have around functional separation today, because it allows us to make these big investment decisions, which, I think, in a structurally separated world you wouldn't."

Although BT's fiber plans are focused on cities and towns, the company has received £500 million ($770 million) in state funding to extend networks into more remote areas. Authorities want to ensure that 90% of the country's homes can receive a service of at least 24 Mbit/s.

Gigaclear claims that its fiber-to-the-premises network is capable of supporting connection speeds of up to 1 Gbit/s.

— Iain Morris, , News Editor, Light Reading