Government Fund Faces Losses Over Struggling Challenger Broadband Firms

The taxpayer backed National Wealth Fund has issued a warning as losses within Britain’s increasingly crowded challenger broadband sector continue to rise. Over the last financial year the government supported fund saw its losses surge to £152 million up from £85.6 million the previous year. The result comes as a consequence of loans made to a raft of full fibre networks springing up to challenge the dominance of BT’s Openreach that have since struggled to break even.

Credit losses reached £31.7 million by the end of March while further writedowns totalling £52.5 million were taken against sector investments. The majority of these writedowns are linked to the high number of so called ‘altnet’ companies pursuing fibre rollouts across the UK. Despite significant investment from banks and private backers in recent years many brands remain deeply loss making with insufficient revenue to cover operational and financing costs. High interest rates increased overheads and sluggish customer uptake have all contributed to the sector’s difficulties in achieving broader scale and financial self reliance.

The interim chief executive of the National Wealth Fund Ian Brown acknowledged a more cautious shift by both banks and the government fund towards these broadband challengers. Brown emphasised the continued willingness to support existing investee companies to protect taxpayer interests remarking that “we want to follow through with that to try to make sure that the companies we have already got our money in continue to operate so we get that back eventually.”

With up to £27.8 billion available the Fund has a remit to address market weaknesses and stimulate private investment in projects that might otherwise stall. Over the past year alone £490 million was issued across five companies including £150 million in loans to Hyperoptic a London based provider and £55 million to Fibrus with a prominent regional presence in Cumbria and Northern Ireland. However Hyperoptic now warns of “material uncertainty” over its future viability and posted a pre tax loss of £144 million last year.

To date a total of £1.65 billion in public support from the Fund and its predecessor the UK Infrastructure Bank has been directed towards the sector. Karen Egan head of telecoms at Enders Analysis argues that while government funding can effectively unlock investment in emerging industries or remote regions “becoming the lender of last resort in an intensely competitive market with too many players does not seem like a good use of public funds.”

While the Fund retains its strategic aim of broadening fibre access across Britain its leaders insist that invested companies carry the potential to recover and ultimately return value for public money despite near term volatility and mounting sector competition.