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Vodafone-CityFibre deal could shake up British broadband

Vodafone and CityFibre have announced a long-term strategic partnership to bring fibre-to-the-premises (FTTP) infrastructure to up to five million UK homes and businesses by 2025.

The partnership represents ‘one of the most significant developments in UK telecommunications since the launch of ADSL broadband around 17 years ago’, the companies said in a statement.

And it’s easy to see why. The tie-up could deliver 50 per cent of the UK Government’s target of ‘full fibre’ to 10 million homes and businesses (see Policy shift sees the UK start on a full fibre diet).

Vodafone UK said the arrangement with CityFibre provides it with “access to a superior product at a lower cost and with better service conditions than the regulated wholesale terms offered by the incumbent operator for access to its legacy copper telephone line broadband network”.

That’s a thinly veiled criticism of Openreach, the access network subsidiary of BT Group, which relies on copper and VDSL to deliver the majority of its broadband services to consumers.

Openreach has been sounding out the industry about its plans to build more fibre in its access network, but is still working out the details of how the investment could be recovered in the current regulatory regime (see Openreach charts a path to FTTP in Britain).

Though Vodafone and Openreach were at rumoured to be in discussions about building FTTP together, that now looks less likely. This summer Vodafone UK CEO Nick Jeffery said the company “would work with any provider who can give us the scale and access and good economic costs to connect fibre to the homes of Britain.”

Under the terms of the agreement with CityFibre, Vodafone will have a period of exclusive rights - predominantly during the build phase of each city network -  to market ultrafast consumer broadband services on the FTTP network that is built, operated and owned by CityFibre. In return, Vodafone has made a 10-year commitment to a minimum purchase of wholesale services, which increases over the period to 20 per cent of the initial one million premises.

Though better known as a mobile operator in the UK, Vodafone has fixed broadband operations in 19 markets, including substantial FTTP assets in Ireland, Portugal and Spain. The operator is pursuing a variety of business models in different markets. In Germany, for example, it recently reached an agreement to operate fibre networks owned by Deutsche Glasfaser (see Deutsche Glasfiber and Vodafone Germany to build business fibre networks) while a network sharing deal will help its network expand in Portugal (see Vodafone Portugal and NOS strike network sharing deal).

This strategy has positioned Vodafone as the fastest growing broadband provider in Europe, marketing high-speed broadband services to 99 million European homes – a footprint that will be expanded further under this agreement, the operator said.

Commenting on the current announcement, the Vodafone UK chief said: “Vodafone is already playing the leading role in building the Gigabit Society across Europe by providing customers with high-speed, high-quality broadband. The UK has fallen far behind the rest of the world, trapped by the limited choice available on legacy networks. We look forward to working with CityFibre to build the Gigabit fibre network that the UK needs and deserves.”

CityFibre ventured into FTTP by building a network in York backed by Sky and TalkTalk (see Firms join forces to create ultra-fast FTTP in York). The success of this trial set the scene for the company to raise £200 million in new capital this summer to fund the roll-out of new fibre networks to one million homes (see Infrastructure investors pour money into British broadband). With Vodafone’s backing, CityFibre’s ambition is even greater.

CityFibre will build, operate and own this new FTTP network, providing wholesale access to Vodafone and other service providers. Construction of the first phase of deployment to one million premises is due to start in the first half of 2018 and will be largely complete in 2021. The first towns and cities to benefit from the FTTP rollout will be announced over the coming months.

The first phase of the agreement covering one million homes is estimated by CityFibre to be worth more than £500 million over 20 years, assuming that the ten-year 20 per cent minimum volume commitment is maintained throughout subsequent years. Both parties have the right to extend these terms to further roll-outs reaching up to four million additional premises by 2025.

Chief executive of CityFibre Greg Mesch said: “This agreement will unlock the UK’s full fibre future and is a major step forward in delivering our vision for a Gigabit Britain. With this commitment from Vodafone, we have a partner with whom we can transform the digital capabilities of millions of homes and businesses and establish an unassailable wholesale infrastructure position across 20 per cent of the UK broadband market.”

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