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A new research note from James Ratzer at New Street Research has claimed that CityFibre, which have already deployed their full fibre broadband (FTTP) ISP network to cover 4.3 million UK premises (4.1m RFS), is making progress on their plans for future consolidation and already has “up to” 850,000 homes served by other alternative networks “under M&A exclusivity“.
Just to recap. CityFibre currently still aspires to cover up to 8 million UK premises with their new full fibre network – representing c.30% of the UK. But their original target of hitting that by around 2025 will not be achieved, and the operator has instead indicated a desire to boost their growth via M&A (mergers and acquisition) of smaller alternative networks.
NOTE: CityFibre is owned by Antin Infrastructure Partners, Goldman Sachs Asset Management, Mubadala Investment Company and Interogo Holding. The network is supported by UK ISPs such as Vodafone, TalkTalk, Zen Internet, Sky Broadband (later in 2025) and many others, but they aren’t all live or available in every location yet (mix of technical reasons and exclusivity deals).
Not unlike other network operators in this market, CityFibre has faced pressures from high interest rates, rising build costs and competition. The operator has also scaled-back their focus on new commercial fibre build, albeit partly to help deliver on the nine rural-focused Project Gigabit contracts – worth more than £865m (state aid) – that they’ve secured from the government (in total these could help them to reach another 1.3m premises).
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Despite this, CityFibre is currently reported to be closing in on a £500m equity financing deal with existing investors (here), while at the same time the new research note indicates that they’re also looking for around £1bn of incremental debt funding – potentially enough liquidity to keep them fuelled through to mid-2027. But much of this is more in service of funding their plans for future consolidation.
CityFibre’s consolidation drive has so far only been able to add a single altnet, LitFibre, since early 2024 (here) – reflecting an increase of around 300,000 premises. According to James Ratzer, in 2025 and beyond, it’s expected that CityFibre will likely only build out c.300k homes per annum organically, largely to fulfil their Project Gigabit contracts. But the operator still aspires to add around 1 million premises each year, which suggest c.700,000 will be coming from future M&A deals (last year they added 900k homes to their footprint, with nearly 300k via the LitFibre M&A).
The research note then indicates that, following their discussions with CityFibre, they now “understand that currently up to 850k FTTH altnet homes in the UK are under M&A exclusivity with CityFibre” (excluding the earlier LitFibre deal). This reflects M&A deals that CityFibre are in the process of trying to finalise, which are expected to follow the same sort of share-based acquisition as the LitFibre agreement.
The analyst sees all this as representing a “new, significant and very rational pivot in their business model”, which they say would see CityFibre taking “an active role in trying to consolidate the market and to prevent further overbuilding in the UK“.
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The potential catch in all this, according to the note, is that the operator’s “strategy pivot is as yet unproven.” For example, it remains unclear how much competition CityFibre might face from rival altnets, some of which may be able to offer a more attractive deal for specific networks. Similarly, it’s unclear how willing the sellers might be to accept Cityfibre equity and then there’s the question of debt.
“The UK fibre challenger sector is carrying too much debt and we wouldn’t expect lenders will want to take a write down on their debt holdings. We therefore assume that for each M&A deal, Cityfibre has to take on £300 of net debt / home acquired. While this doesn’t increase Cityfibre’s immediate funding needs, it does increase their interest costs and might be an issue for future debt covenants as it would increase headline net debt,” warned the note.
However, despite those challenges, New Street Research still sees growth through M&A as being a “far more sensible approach to scaling Cityfibre’s business than continuing with excessive levels of organic network build“. The key takeaway for now is that CityFibre’s investors seem to have confidence in their approach, at least for the next few years, and appear ready to support their consolidation drive. Time will tell.