Expectations for this year’s Connected Britain event were high, with many anticipating a wave of mergers and acquisitions among the UK’s Alternative Networks (AltNets). The rumour mill suggested a market ripe for consolidation. However, the reality on the ground told a different story. A panel discussion on the future of the AltNet model revealed a more complex and strategic landscape than simple market consolidation.
So, why hasn’t the anticipated flurry of activity happened yet? The answer lies in valuation challenges, long-term investment horizons, and the strategic planning necessary to make a merger truly successful. Let’s explore the key factors shaping the future of the UK’s fibre market.
The Challenge of Valuing a Growing Business
One of the primary roadblocks to widespread consolidation is the difficulty in valuing an AltNet that is not yet cash flow positive. Most of these companies are in a high-growth, high-investment phase, focusing on expanding their network footprint rather than immediate profitability.
This creates a valuation gap. Potential buyers struggle to assign a concrete number to a business that is still heavily investing and burning cash. For the AltNets themselves, many have business plans projecting them to become cash flow positive, and even profitable, within the next 24 months. Selling now would mean undervaluing their future potential just before they turn a corner.
A Long-Term Investment Game
Investing in fibre infrastructure is not for the faint of heart. It is a long-term commitment. Business cases often span 20 years, with the underlying fibre asset expected to have a useful life of 50 years or more. Investors in this space understand that returns are not immediate. They are playing a long game, betting on the future value of digital connectivity.
This long-term perspective means that current market pressures are less likely to force a fire sale. Investors are patient, willing to wait for their AltNet investments to mature and reach their full potential before considering an exit.
Why Merging Isn’t a Magic Bullet
Simply combining two AltNets doesn’t automatically create a stronger, more viable business. A merger of two similar-sized companies often results in a larger entity with the same fundamental challenges: significant assets and substantial debt that requires servicing.
For a merger to be a positive step, it must be accompanied by additional funding. This new capital is crucial to support the necessary consolidation of operations, networks, and systems. Without it, the combined entity cannot achieve the economies of scale that make the merger attractive in the first place. The goal is to create a leaner, more efficient organisation, not just a bigger one.
The Path to Profitability: Take-Up Rates and Wholesale
For any AltNet, reaching a 30% take-up rate is a common benchmark for success. This is the point where most business models start to look healthy. To achieve this, provisioning enough capacity on the Optical Line Terminals (OLTs) is essential, but it’s only half the battle.
To drive customer numbers and accelerate the journey to cash-flow neutrality, many AltNets must consider opening their networks on a wholesale basis. Becoming a wholesaler allows them to sell capacity to other service providers, dramatically increasing the potential customer base on their infrastructure and maximising the return on their investment.
Innovative Solutions for Connecting Homes
The final piece of the puzzle is connecting individual homes, a critical metric for demonstrating growth and moving towards profitability. The traditional method involves building fibre from the street cabinet to the home, but this can be slow and expensive.
Fixed Wireless Access (FWA) presents a compelling alternative. This technology allows operators to connect customers more easily and cheaply, often without needing the same level of permissions as a full fibre installation. FWA can also be a game-changer for reaching rural areas where laying fibre is not economically viable. A hybrid approach, combining fibre and FWA, could be a powerful strategy for AltNets to expand their reach and accelerate customer onboarding.
The Inevitable Consolidation and How to Prepare
While the market may be quiet now, consolidation is inevitable. It is only a matter of time before conditions align for a new phase of mergers and acquisitions. When that time comes, the AltNets that are best prepared will command the highest value.
For both buyers and sellers, the key to a successful transaction will be a well-documented and consistently configured network. Having the right OSS (Operations Support Systems) for network orchestration and automation will be critical. In a post-merger environment, the ability to integrate different vendor equipment and network topologies seamlessly will be what translates the deal from paper to tangible value. AltNets that invest in these systems today are not just building a better network; they are preparing for a more profitable future.
To sum up, the evolving landscape of UK AltNets indicates a complex interplay of investment pressures, market consolidation challenges, and technological advancements. While the anticipated wave of mergers has yet to fully materialise, the focus remains on sustainable growth, network efficiencies, and meeting consumer demands. Understanding the dynamics driving this sector will be critical for stakeholders aiming to capitalise on the opportunities that lie ahead in the push toward a fully connected Britain.