BT Rival Warns it Needs More Cash to Survive

BT Rival Warns it Needs More Cash to Survive

BT rival CityFibre has warned it must raise more money to survive as the rising cost of its broadband rollout pushed debts above £3bn. The company, which is the largest of the so-called “alt-net” broadband firms taking on BT’s Openreach, said there was “material uncertainty” about its ability to continue because it was reliant on further external funding.

CityFibre, which is backed by Goldman Sachs and Abu Dhabi sovereign wealth fund Mubadala, secured £4.9bn in debt financing from banks two years ago to help fund its network build. However, the funding is expected to run out by the middle of next year and CityFibre has appointed advisers at US investment bank Evercore to tap debt markets again.

Despite the warning, bosses said they were confident about raising more money, especially after announcing a major wholesale deal with Sky in August.

Cityfibre will also make use of an extra £1bn in debt as part of its previous fundraising and has more than £500m of cash available.

Nevertheless, the figures underscore the squeeze on finances for alt-nets as surging interest rates drive up the cost of rolling out networks.

CityFibre recorded a loss of £419m in 2023, up from £94m the previous year as increasing borrowing pushed finance costs to £253m. The higher costs dwarfed revenues even as they rose to just under £100m, with the broadband firm adding 163,000 new customers.

The company burned through another £1bn amid heavy investment in its full-fibre network, while gross debt rose by more than £1bn to £3.1bn.

The ballooning costs drove CityFibre to cut hundreds of jobs last year as part of a wider cost-cutting plan aimed at shoring up its balance sheet. Bosses stripped out more than £50m over the year, though expenses still rose to £233m amid growing investment.

CityFibre’s network now reaches around 3.8m homes, almost halfway towards its 8m target.

Simon Holden, CityFibre’s chief operating officer, said: “We know that we’ve got a business model that works in terms of scaling, we know that we’ve got an economic model that works, so overall I think we’re feeling okay about the journey that we’re on.”

It comes after CityFibre struck a major wholesale deal that will see Sky launch broadband services on its network.

The partnership, which starts next year, will provide a much-needed boost to the challenger firm. It was also viewed as a blow to BT, which hosts Sky’s customers on its Openreach network.

CityFibre has positioned itself as a key player to lead a wave of consolidation in the alt-net market of smaller broadband providers. The company bought smaller rival Lit Fibre earlier this year in a deal that will add up to 300,000 premises to its rollout by early next year.

CityFibre has itself also been viewed as an acquisition target and held initial talks with Virgin Media O2, the second-largest player in the market, about a potential deal. But Mr Holden said such a tie-up was getting “less and less likely” as CityFibre continued to expand its network, adding: “We don’t feel any compelling need to do that sort of deal.”

Earlier this week, smaller rival Hyperoptic said its pre-tax losses almost doubled last year to £142m due to soaring interest costs. It also warned of “material uncertainty” about its ability to continue as a going concern.