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Alternative internet providers swarmed the market during Covid-19 when internet usage became paramount to the shift of everyone suddenly having to work from home during lockdowns.
In the UK we have over 100 altnet providers serving 16.4 million homes, according to a 2025 report by the Independent Networks Co-operative Association. This is up from 1.2 million homes in 2019.
Investors were quick to support this expansion with cheap funding. Since 2020, the sector has received around £17.4bn of funding, according to advisory firm BDO.
However, the ‘build and they will come’ model proved far too optimistic as subscriber growth failed to keep pace. Rising interest rates and burdening costs of building the infrastructure also weighed on these broadband providers.
We started to see the first signs of distress at the start of the year, with G.Network filing for administration, shortly after its acquisition by distressed debt investor FitzWalter, and creditors moved to take control of Gigaclear.
On this episode we sit down with Ben Davies and Stuart Keeping, senior managing directors from financial advisory firm Teneo to delve into the rise and fall of this overcrowded market and providers’ response to the challenges.
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Episode transcript:
This transcript was generated with AI assistance. Report any material inconsistencies or inaccuracies by emailing podcast@9fin.com.
Bianca Boorer:
Scratching your head over the latest complicated restructuring, wondering whether Europe will continue to follow aggressive US tactics? Well, tune in to Distressed Diaries, a podcast where we dig into companies that have taken a turn for the worst. I'm Bianca Boorer, Senior Distressed Reporter at 9fin. In this series, we will explore how companies have ended up becoming over-levered, and more importantly, how they plan to right-size their balance sheets.
Today, I'm sitting down with Ben Davies and Stuart Keeping, Managing Directors from financial advisory firm Teneo, to talk about the recent struggles faced by alternative internet providers, or altnets. Thank you both for joining me today.
Altnets have made the headlines recently after London-based provider G Network filed for administration in January, shortly after being taken over by distressed fund FitzWalter Capital. Shortly after this news broke, creditors, and another UK provider, Gigaclear, started the process to take over the business after they failed to find a new owner. 9fin reported that Teneo is advising Gigaclear on that restructuring.
But let's take it a step back and look at how the altnets space has gotten so crowded. COVID-19 was a major catalyst for the sector's growth, with internet traffic more than doubling in 2020, as the world shifted to working from home. Cheap funding then flooded into support investment in the sector, and the UK government also invested heavily through the UK Infrastructure Bank, which was set up in 2021 and has since rebranded to the National Wealth Fund.
I was looking at some statistics and according to the Independent Networks Co-operative Association, the sector comprising over 100 altnets, which serve over 16.4 million homes in the UK, received over £17.4 billion of investment between 2020 and 2025.
So, Stuart, you lead Teneo's telecoms, media and gaming practice. Can you lay out the scene in the UK, sort of how many providers are there and how are they differentiated?
Stuart Keeping:
Well, I think you've summarised it well there. There are well over 100 Altnet providers in the UK They vary enormously. There's a long tail of very small providers. There's probably 15 or 20 of significant scale. And I would say significant scale is having 200,000 lines or so.
They vary significantly. Some are focused on building in rural areas. Some are focused on building in urban areas or to what the industry calls multi-dwelling units or blocks of flats. Some focus on single dwelling units. And they vary in terms of their geographical footprint. Some are quite regional. Some are more national in nature.
And the other key distinction is that several, CityFibre being a good example, are focused on a wholesale model. So they don't serve customers directly. They serve customers through ISPs like Sky or TalkTalk. But many of the players are what we would call vertically integrated. So they have both a retail ISP business and the infrastructure business below it, and they serve customers directly. But there’s a big spread and a big spectrum.
In terms of the way the market's developed, again, I think you characterised it very well. It's a very different world now to the world of five, six, seven years ago, certainly pre-COVID. That was characterised by a lot of very cheap capital chasing a lot of businesses, as I’ve said 100 or more, with very ambitious build plans.
It was all about build, build, build, build. A land grab. Build it and they will come.
If you actually add up the plans of all of those altnets, in terms of their overall original build ambition, if you include BT’s plans and Virgin Media’s plans, the incumbents, it looked at one point as though something like 93 million lines of fibre were going to be built in the UK We have 32 million premises or so. So that implies close to three lines for every premise. So as you mentioned, it was crowded.
Now, a combination of reining back on that build ambition now, and we’ll get into the reasons for that I’m sure, and the beginnings of a consolidation wave in the market means that it will be significantly fewer than 93 million lines. But it still will be in the order of 55 to 60 million lines deployed. So that implies two times overbuild. And that, of course, drives healthy competition, but it also makes it quite difficult to drive returns on that investment, on the basis that at any one point in time, probably 50% of the lines in the UK will be idle.
Bianca Boorer:
Yeah, so I sort of mentioned COVID as one of the catalysts. But what do you think led to this UK Altnet boom?
Stuart Keeping:
I think it's important to interpret the demand for bandwidth without getting too technical. Lots of bandwidth can be delivered by existing technology, whether it's cable broadband, which Virgin Media offer, which can offer gigabit speeds, but also can deliver a lot of bandwidth. Even the fibre-to-the-cabinet solution, which BT has rolled out over the last 10, 15 years or so, may not be able to deliver the same absolute speeds as fibre, but is capable of delivering a very usable experience in most use cases. Streaming Netflix and so on.
One of the key challenges that I think the altnets have faced, or fibre builders in general have faced, is that the proposition of full fibre for many people is not overwhelmingly compelling. And I think those early plans assumed ‘build it and they will come’. As soon as we lay fibre to the premise, customers will sign up. Many business plans assumed that customers would pay a premium for that.
I think that allied to a belief that with that customer take-up, operators could build the network and then effectively lock out that network for anybody else to build so there wouldn't be overbuild. I think that was a flawed assumption and I think the numbers suggest it.
But I think what was fuelling it, for the most part, was a great availability of very cheap, almost free capital. So it was really fuelled by the availability of a lot of debt.
Bianca Boorer:
Yeah.
Ben Davies:
And I think if you think about the types of financial stakeholders who provided that debt, they were attracting some really sophisticated, deep-pocketed investors. We're talking about pension funds, insurance companies and specialist infra funds, who are often backed with really long-standing relationships into the big project finance teams of the major banks. So you've got some very, very grown-up investors around the table when you come to look at what happens when things go wrong.
Bianca Boorer:
Yeah so speaking of things going wrong, my colleagues at 9fin wrote a feature about the fall of the Altnet sector showing that the UK’s aggressive build-out has not been matched by subscriber growth.
Ben Davies:
Absolutely.
Bianca Boorer:
Providers have also suffered from the rise in interest rates on their debt, among other rising costs and the delays to roll-up plans. So, what are the factors you think have led to these providers entering distressed territory?
Stuart Keeping:
So, I think there are two or three things. I think the first was a realization that consumer take-up or customer take-up wasn't an absolute given. And that has put pressure on altnets in terms of, and on all fibre providers, in terms of the way in which they compete. And so, what they've found they've had to do is, in many cases, discount or incentivise quite heavily to persuade customers to migrate.
There are some other localised challenges that some, and this applies, for example, to G Network, which is getting access to buildings to install fiber, getting wayleaves into the building so that they have a customer and they have their network ready and they have access to the building. All those stars need to align for them to actually activate a customer. And that's been quite challenging for some.
I think, obviously, the increase in the funds required to service the debt that they've run up has made a significant impact. So, that margin pressure and volume pressure at the top of the business and free cash flow pressure to fund their financing, I think, has really brought a lot of Altnet economics into really sharp focus over the last two to three years.
Ben Davies:
There's a slightly geeky technical point as well, which, given it's a 9fin podcast and a 9fin audience, I might just delve into. And that's around how some of these debt facilities work. So, in 2024, we worked with an altnets which could only unlock the next tranche of its debt funding by hitting a milestone linked to the number of homes passed as opposed to the number of customers acquired.
Bianca Boorer:
Oh, interesting.
Ben Davies:
Homes passed is really a metric that tells you about the scale of your network, but it clearly isn't the same thing as signing up a bunch of paying customers. So, what our client was really doing is putting miles and miles of new fibre into the ground because the structure of the debt facilities kind of perversely incentivised it to keep building rather than monetising what it already built and put into the ground.
And then, you know, post-COVID disruption, etc., they missed some build targets, they missed some connection targets, they ran out of cash, and then the lenders turned around to the sponsor and said, well, hang on a minute, this is now your problem. We need you, the sponsor, to bring forward your next equity injection before we release another pound of debt. And then, voila, you're into a big, deep restructuring discussion.
Bianca Boorer:
I don't know if you could say which...
Ben Davies:
I won't say which.
Bianca Boorer:
Well, you always got to try.
Ben Davies:
If you don't ask, you don't get.
Bianca Boorer:
Yeah. So, do you foresee any other providers? I think you guys are sort of predicting this ahead of time, you know, on your horizons, looking at it, I think, from speaking, I don't know, was it last year, the year before you saw this coming?
Ben Davies:
It was even earlier, actually. So, I think we were amongst the earliest and more bearish observers. So, we were talking to pretty much everybody, the investors, the operators, the lenders, the lawyers, with some of our analysis, even back as far as 2022.
Bianca Boorer:
Oh, wow.
Ben Davies:
And we were involved in the first UK Altnet administration, which was called Broadway, which was a small rural one. So, my colleagues, Benji Dymant and Daniel Smith, were appointed over that in mid-2023.
Obviously, Stuart's team has historically done huge amounts in telco more broadly, but from the much more narrow perspective of my team in Teneo, which is the restructuring and insolvency team, we’ve done four restructurings in the last 18 months in the UK, and we're live on two in Germany at the moment as well.
And I suppose what you're really asking me for is the future casting. So, yes, we expect there will be more to come in both countries. I can't name names, but there is a watch list. And I know 9fin has a watch list as well.
Bianca Boorer:
Yes, we constantly are adding to our watch list. So, the broadband and telco sector is very cyclical in its nature, and given the level of infrastructure investment, which is something even the big players are struggling to cope with. How is it sort of, in comparison, impacting these smaller players?
Stuart Keeping:
Well, as you said, it is cyclical. And what we've seen probably is the change in phase of that cycle over the last 18 months or so. The smaller players, the bigger players have been very much in a build phase. Really, it's only Openreach that's continuing to build at scale, Netomnia, one or two others. But Openreach is continuing to build and rolling out a million lines a quarter or so.
But for many altnets, this reality check they've had has caused them effectively to move into the next phase: Slow down or, in many cases, stop the build and really focus on commercialising the network. And so, it comes back to the whole issue of driving take-up. But they're very much challenged to do that and to preserve that capital.
The cyclical nature of the industry, lots of investment up front, followed by a growth phase, followed by a harvesting phase, I think also applies here. And the one good thing about fibre, and it remains a sound long-term investment, is that once the fibre is installed, it's about as future-proof as telecoms ever gets in terms of future capital investment requirement. So, you can see the underlying attractiveness of fibre that drove this in the first place, you know, long-term, high-margin, cash-generative assets.
But there's a lot of investment and pain required to get to that end state. In a lot of ways, it's not dissimilar to the cable wave of 20, 25 years ago or so, when there were lots and lots of providers, they all eventually came together through consolidation. The one big difference here is that in the cable situation, you didn't have an incumbent telco building a million lines a quarter.
Bianca Boorer:
So, what do you think the altnets are doing to combat this? We're seeing a lot of job cuts in the sector. The Financial Times reported that CityFibre decided in January to cut a third of its staff after it completed its £2.3 billion refinancing last year. I spoke with a source close to the company and they said this was actually due to a change in strategy rather than the company being in distress because it delivered good results in 2025.
There was also another London-based provider, Hyperoptic, that had been doing job cuts since last year. So, yeah, I guess is this sort of the main response, do you think?
Stuart Keeping:
Well, there's a couple of things driving that. So, first, obviously, is as the altnets pivot from a build model to a effectively monetization model, they don't need some of the roles that they have that were associated with the build program management, securing wayleaves, planning. And so, there's been a significant reduction, the opportunity for significant reduction in the costs to support the build and the build programs.
But also, they're being very much more focused now on running lean operating models. So, really looking at their go-to-market costs, their customer care costs, their other SG&A costs to make sure they're really running as tightly as they can and maximizing the free cash flow that they can generate as they sign up customers. So, you know, part of it is operational cost pressure and part of it is actually a change in the structure of the business activity.
Bianca Boorer:
And another solution we're seeing, and you've already mentioned this quite a lot, Stuart, is a consolidation. So, on the 18th of February, Nexfibre announced that it was buying Substantial Group's Netomnia for £2 billion. And so, Nexfibre is a joint venture between InfraVia, Liberty Global and Telefonica. Do you expect to see more consolidation?
Stuart Keeping:
Absolutely. Yeah, absolutely. The Nexfibre/Netomnia deal is something of a game-changer in the markets. The first really significant good-book deal. There have been some other sort of good-book deals, but there will also be consolidation driven by distress because there will be distressed assets as well. So, I think what we'll see is a sort of almost a two-tier M&A market.
I think there will be a degree of consolidation between the sort of the healthier providers that are able then to drive the scale and the capital structure that will eventually drive value. But there will also be transactions relating to some of the more distressed businesses that have, in many cases, good underlying assets. They just don't have the capital structure that allows them to be able to, on a standalone basis, monetise them.
And then there are a few in the middle that probably don't need to do anything immediately.
What's held it back, really, in terms of consolidation up to now has been, you know, what I think is still, in many cases, a significant mismatch in valuations between the initial sponsors looking to get a return on their investor capital and acquiring businesses. Now, obviously, that gap is closing and will continue to close. And that characterises, you know, many of the markets. And, you know, Ben mentioned, you know, we're also very active in Germany, seeing similar characteristics there.
Ben Davies:
I think that observation about the two-tier M&A market is really interesting, actually. And it does create, you know, real challenges in terms of actually delivering some of those deals. So in, through my lens, the restructuring lens, the sort of harder end where, you know, you have two distressed businesses being knocked together. A lot of that M&A activity is actually funded not by cash and debts, but they're paper-to-paper deals. And a good example of this is the recent TrueSpeed/Freedom Fibre combination.
I think the caveat around the paper-to-paper deals is to combine the equities much harder when you've got one alt net who is much more highly levered with debt than the other one. You can obviously structure around that, in theory, but it does really crystallise that valuation debate that Stuart touched on, which is if the value in one is really breaking deeply into the debt, you then open up this restructuring discussion between the stakeholders. Who is putting the risk? Where's the reward shared? How do you do the upside sharing?
And, you've also got a lot of lenders there who are probably overexposed to the sector now. And they're very keen to get some kind of pay down through one of these situations. So actually, if you are in the position where you have a good-book deal and there is cash available, it's a fantastically powerful negotiating position because you can go to lenders and say, we can give you a partial pay down at par with some cash if you then roll the rest of your exposure into the new world. And I think a lot of lenders are finding that very attractive at the moment.
Bianca Boorer:
Okay. And on the Netomnia deal, CityFibre's CEO actually came out and warned that the merger could reduce competition in the market. He said there is an 80% overlap between these two players and if the deal goes ahead, it would significantly reduce competition and choice available to consumers. And he was calling for the Competition Markets Authority to thoroughly examine the deal. Do you think regulatory constraints will pose a risk to consolidation in the sector?
Stuart Keeping:
I think they may do and I think there are certain deals that would deeply alarm the regulator or the CMA, but I'm not sure, you know, I think deals that involve, and Reach, for example, I'm sure would draw the scrutiny of those.
I think there's a real balance that the regulators and policy makers have got to strike between ensuring fair competition and value for money on the one hand, but also ensuring a sustainable market where investors can get reasonable returns on the other. At the moment, I think all of this conversation is suggesting that there's plenty of choice available, but actually driving sustainable returns from this market overall remains challenging. So, I think from a sort of overall policy point of view, I think most people would probably be pro-consolidation.
I think it's also then important to think about consolidation, a competition really manifests in this market at a local level. It's what is the choice that an individual property has between alternate network solutions. Because if you look at it at a national level, the market share that, for example, Netomnia in the overall market, you know, is probably not one that would significantly alarm competition authorities in the ordinary run of things. So, I think you have to look at it at a local level and ensure that there's healthy competition.
In my view, I think there will be a need for a degree of regulation of the way in which the infrastructure is priced to service providers. And so we will end up with, in effect, two, perhaps three infrastructure networks, but with healthy competition of retail internet service providers on top of that, which is not dissimilar to the model we have now. And there's the question of how much the regulator will need to ensure that there's fair competition at that interface.
Bianca Boorer:
Another question that springs to mind is, will the government step in to help? I was looking into this and in 2024 the government launched Project Gigabit, wherein they promised £5 billion to subsidise the rollout of fast broadband to rural areas. And I think the aim is to have 99% of premises have access to gigabit by 2032. So yeah, what's sort of your view on that?
Stuart Keeping:
So as you say, Project Gigabit which is targeted at making connectivity available in those areas which otherwise would not be economically viable. So in particular, you know, deep rural. It's also, some of it is earmarked for 5G as opposed to purely for fibre, but the majority of it is being pointed at fibre.
It's another source of funding and it's important that there is funding available for those areas which are economically challenging, but that £5 billion you can add to the £40 or so billion of private capital equity and debt that's going into all of the players including BT, Openreach and Virgin Media. So it's helpful from providing funding on the supply side.
I think what the government, or policy makers, could do is a little more around helping to stimulate demand. So helping to incentivise the switch over from copper-based services to fibre-based services, how they would do that. You know, there's a number of different levers they could potentially pull, but I think interventions to support growing demand for fibre as opposed to necessarily providing additional financing options for the supply of fibre are probably going to be most helpful to the industry now.
Bianca Boorer:
I think it’s part of the policy they’ve got a voucher scheme for residents.
Stuart Keeping:
Yeah, so they’ve moved away a little bit from providing vouchers. So, residents could ask for a voucher, the voucher would then effectively be granted to a local fibre builder and then that voucher would pay out to the fibre builder once the service was installed. It’s quite a cumbersome premise-by-premise approach.
The way Project Gigabit is largely deploying capital now is through projects. So effectively they will issue lots of projects to several thousand homes and operators will bid for those projects. So you see CityFibre doing a number of those, Openreach doing a number of those, which at least allows a degree of scale in the provision of the funding for those challenging projects.
Bianca Boorer:
So we've mentioned a lot about Germany as well. My colleague Alessia Argentieri has been writing articles about Deutsche Glasfaser and also UGG (Unsere Grüne Glasfaser). So they've also hired a financial advisor. So you guys have got Herter & Co in Germany. So what do you see happening in Germany?
Stuart Keeping:
Well, as Ben says, we're also active in that market and with our colleagues in Herter & Co, and I work with our colleagues in that market as well. I think the German market is similar, but there are some significant differences and I think some of the underlying causes for the challenges the operators are seeing are slightly different.
The German market, at this point, is not as developed in terms of the UK. The UK now more than 80% or so of premises are now covered by full fibre. In Germany it's a little over 50%. So the progress of the build is not as advanced.
But, one of the things that has been a real challenge for operators in Germany is the cost of the build. So, regulations around things like trench depth, the fact that a lot of their network is underground whereas we have quite a lot of our networks particularly in rural areas on poles still in the UK and in other European markets. So the cost of the build on the basis of a cost per premise passed is significantly higher than it has been in the UK.
The other thing that's really fuelled that is that there's no real commonly used mechanism for reusing the duct infrastructure, or the ducts and poles infrastructure, of the incumbent in Germany, as has been used by a lot of the altnets in the UK. We have a platform called PIA, Physical Infrastructure Access, in the UK which allows altnets to roll out their network without anything like the same civil engineering cost. That's really not the case in most cases in Germany.
So, those high build costs have driven high levels of indebtedness. And the final piece is the German market is currently well served by reasonable broadband solutions whether they be cable broadband or fiber to the cabinet solutions much as the UK. So I think a lot of the operators have struggled to drive take-up at the level that they were hoping. The one piece of better news in the German market is it looks likely that there won't be quite the same level of overbuild in Germany at the end and in part because in a way they can be a little bit more rational around the way in which they're rolling out capital at the moment.
Ben Davies:
I mean from a restructuring perspective, I think there are a few common themes across both UK and Germany. So what we will typically see is a sponsor to a troubled alt net will typically just, rather than putting in equity itself, try and run a refi process using PIK holdco. In the current market that has a pretty low probability of actually coming through. So, then we're back asking existing lenders to either give some forbearance in return for stopping the build and rationing those cash outflows very tightly but what the stakeholders really need to do is buy some time and a bit of a runway to really open up the M&A angle.
So, I think we've pulled on a number of threads here but a lot of them lead back to the inevitable consolidation in both of those big markets.
Bianca Boorer:
So what is the future of altnets?
Stuart Keeping:
Great question. The underlying thesis as I said earlier remains sound. A long lived utility asset with very sustained demand and high margins which is and will continue to become more and and more and more important to end users is a compelling one. But the industry needs to sort out its structural challenges and position itself in a way in which you can deliver those services in a sustainable way in terms of the use of capital and in terms of the cost to serve.
So, I think there will be winners and losers of the current groups of investors. I think there will be significant consolidation but that ultimately, once these businesses get to generating healthy free cash flows you're well able to cover their levels of indebtedness now I think at that point you will also see new equity money coming into the market. But, at this point in time the majority of deals are going to be strategic deals amongst the existing providers.
Ben Davies:
Yeah, and I think to bring it back to a personal level there's sort of a consumer lens on all this as well so if you test and challenge some of the original switching assumptions that were in the original business plans people assumed it would be a very vibrant very competitive market. And I think seven or eight years ago when a lot of those business plans were first being formulated that made sense. You know you would go to the pub and people would complain about their broadband and to switch. It glitches it goes down all the time. I think what we are now seeing because just frankly the service is so much better consumers are largely happy with their broadband services so if you're paying 40 quid a month for a reliable fibre service it allows two adults to work from home while the kids are gaming downstairs there is not much incentive to then pay a whole load more for some kind of premium 300MB service.
Equally because it's so critical now as a kind of utility to the household to switch to save a couple of quid a month might be a risk if your other option is a provider you've never heard of people just aren't switching in that way that I think many original investors thought they would.
Bianca Boorer:
Yeah consumer behaviour is hard to change but thanks so much for joining me today guys.
Stuart Keeping:
Very well.
Ben Davies:
Thank you for having us
Bianca Boorer:
And thank you to our listeners. If you want to share feedback on this episode please reach out to us at podcast@9fin.com and we'll see you next time.