In a significant development within the UK telecommunications industry, BT Group has faced a setback as media giant Sky has chosen to partner with rival network provider CityFibre for its broadband services. This decision comes as both BT and CityFibre strive to expand their full-fibre networks across the UK. CityFibre, a prominent alternative network provider, announced on Tuesday that it is preparing to make Sky’s broadband services available on its network by next year. Sky clarified that the focus will be on areas where there is no overlap between its existing network and that of BT’s Openreach division.
Currently, BT and Sky have an agreement where BT hosts all of Sky’s broadband customers, which Sky reported to be over 6.5 million subscribers at the end of 2022. These customers are expected to remain on the Openreach network, while new Sky customers will utilize CityFibre’s infrastructure in areas without Openreach service. The announcement had an immediate impact on the stock market, with BT shares closing down 6.4% at £1.36 on Tuesday.
Alternative network providers, or altnets, have been focusing on acquiring customers after receiving substantial investments, though some have had to consolidate and reduce their workforce. Greg Mesch, CEO of CityFibre, highlighted the importance of this deal, calling Sky a “kingmaker” in the industry. He noted that the agreement would allow CityFibre to focus on its wholesale business model instead of entering the retail market directly. CityFibre’s infrastructure has already reached 3.8 million premises, with 450,000 customers onboard, and the company aims to expand to at least 8 million premises in the coming years, having recently acquired rival altnet Lit Fibre.
Amber Pine, managing director of connectivity at Sky, stated that the partnership with CityFibre would enable them to provide fast, reliable, and value-driven broadband to more homes across the UK. Sky will join Vodafone, TalkTalk, and Zen Internet as national service providers utilizing CityFibre’s network.
Industry experts have differing views on the implications of the Sky-CityFibre deal. Karen Egan, head of telecoms at Enders Analysis, described it as a positive move for CityFibre but noted that it could pose challenges for Openreach, potentially pressuring its wholesale prices. Conversely, Matt Howett, founder and CEO of Assembly Research, suggested that there would not be significant cannibalization since CityFibre intends to focus on rural areas.
In response to the news, Openreach stated that it would retain its customer base with Sky and anticipated this development given the increasingly competitive nature of the UK’s fibre broadband market. BT maintained its financial outlook for the year, indicating that its guidance had always accounted for Openreach potentially losing market share. The FTSE 100 group recently reported Openreach broadband line losses of 196,000 in the three months ending in June, attributing this to moderately higher competitor losses in a weaker overall broadband and new homes market.
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