How can UK fibre investors protect themselves against overbuild?
A recent study published by Point Topic and INCA shows the extent of investment into the UK ALT-NET fibre market (here called “Altnetandia”).
The already significant £5.6Bn pledged by March 2020 have almost doubled in less than 1 year to £10.8 Bn. These numbers are supposed to be spent by 2025, the equivalent of a 10X acceleration of the industry. There are other supporting accounts arriving to the same conclusion with the quoted study, just less recent. The consensus is: the sector is heating up.
Just how fast are these monies getting spend? The number of premises passed by ALT NETs went up from 0.8M in Dec 2019 to 2.5M in Dec 2020 and is estimated to reach 6.5M in Dec 2021. This is an annual growth rate of 300%. At the same time, Openreach have announced another £15bn to reach 80% of the UK by 2026. That’s more than 4M premises passed per annum. The race is on.
Intuitively, this means we’ll soon see asset duplication, and exit plans will have to be reviewed as larger players may not be so keen to acquire footprint they already cover. Ofcom has already signalled in October that they will be changing their stance and begin to consider a large number of “Area 2” premises will be covered by more than one operator.
So how can investors protect themselves from overbuild? And even more, what are the best “moves” to guarantee exit maximisation? Will try to give in here my views on what these are. If you see any others, feel free to add your comments to the blog.
Threat defence: go where there is no competition! – why not enhance your Strategic Deployment logic and execution process? Using the right tools, you can find out where your competition is and where it is heading. Thinkbroadband.com is a great resource, giving you coverage areas that get updated every few months. User – submitted speed test results also give you an idea of that speeds a region is currently experiencing. Various planning tools (Mapinfo, Qgis, etc.) can give you ways to estimate the % of PIA in a target area as well as home density.
Real-Time geographical intelligence- Certainly, your process needs to be agile and you should have means to go to a reserve pool of targets in case your primary targets get announced by a more powerful competitor. There are 21st century tools to scan the internet for announcement and report them to a designated email address in real time. Meltwater is a London based tool that can deliver towards that purpose an off the shelf product. They are one of many new companies that focus on big data analysis and information identification in real time. A similar result can be developed in house using a platform such as Google Data Studio.
Go demand – driven: Create a platform where communities can organise themselves and choose you as their supplier. Companies like Gigaclear and Hyperoptic have successfully developed this model and are today much less exposed to competitive threats.
Find opportunity: JFK observed noted that “when written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger and the other represents opportunity.” Is there an opportunity to be found in a “heating” market?
Most VCs have opted for multiple vehicles to invest in, each of them with complimentary go to market plans, to cover the full spectrum of options. While in theory that makes complete sense, there are systemic limitations such as build capacity. There are just not enough workers to deliver all the projects at the same time at a given price.
Perhaps it’s time to reflect on “what constitutes an investable vehicle”, the MVP blueprint for a company that can be successful in the marketplace.
Value chain investment: An opportunity could be to also invest inside the value chain into a delivery vehicle. Netomnia does just that. Netomnia & YouFibre created a dual structure to ensure value is correctly captured. After all, an ability to build fibre networks is the top key success factor (KSF) in the fibre game. Another way to invest in the value chain is by looking “downstream” and identify ISPs that have great exposure to clients. Giganet have done exactly that while ensuring that they will always be able to generate good revenue (another KSF) in parallel with network expansion.
Coopetition: You also may want to have a standardised approach in place in case they get announced by a smaller or equal sized competitor. Sharing wholesale provisions? Split deployment target areas? Collaborate in backhaul to reduce costs? There are multiple ways this can be achieved. We will reveal some of them in our next post.
Hope you enjoyed our content. As always, please drop in your comments and I shall seek to answer as many of them as I can.
Next Blog: Game theory and collaboration in the ALT NET Fibre market