Inspiratia InfraTech Takeouts

The alternative network providers (altnets) – a variety of entrepreneurs
competing with incumbents Openreach and Virgin – have received a helping
hand from the UK government by way of competition rules and a funding
environment stimulated by the Digital Infrastructure Investment Fund (DIIF).
But full fibre connectivity is still at around just 3%, meaning that the national
network build-out will require much more capex investment – estimated to be in
the tens of billions of pounds.
The rush for full
fibre
"Given only 2-3% of the country has full fibre, there is a lot of land to go for and
that is why you're seeing increased interest from infra investors in the space. It
is a little bit of a land rush," said Oliver Bradley, corporate finance director with
London-based fibre developer CityFibre.
For the altnets – which also include the likes of Hyperoptic and Gigaclear – the
main challenge is amassing sufficient scale to be taken seriously by internet
service providers (ISPs) and financiers alike.
Already there have been some examples of success, with CityFibre recently
striking a subscriber deal with ISP Vodafone and now receiving equity backing
from major infrastructure fund managers Antin and Goldman Sachs.
"The challenge for altnets has been a chicken and egg problem of unless we are
big we are not relevant to [ISPs], but unless one of you helps make us big we will
always be small. So how do you break that cycle?" asked Bradley.
On the financing side, also, scale is a problem. Debt providers say companies
need to grow and consolidate to be more creditworthy and attract cheaper forms
of financing. Yet the altnets' access to capital has already improved dramatically
since the government began developing its DIIF initiative in 2015.
"You can argue that the government has achieved its policy objectives already
because the amount of focus on the sector, the amount of transactions that have
happened. The capital is there – the DIIF is complementing and doubling the
firepower available," said John Mayhew, head of infrastructure finance at M&G
Investments, which is mandated as one of the fund managers under the DIIF
initiative.
8 Project name / Section
For lenders, Mayhew said, the altnet financing market still has a way to go
before it is more mature and can command higher gearing and better pricing.
In addition to size, the altnet business model is also prone to demand and
technology risk, though these can be mitigated with anchor contracts and the
backing of large corporate ISPs.
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