TIDMCITY TIDMVOD
RNS Number : 9950V
CityFibre Infrastructure Hldgs PLC
09 November 2017
For immediate release
9 November 2017
CITYFIBRE INFRASTRUCTURE HOLDINGS PLC
('CityFibre' or the 'Group' or the 'Company')
CityFibre signs strategic FTTH partnership with Vodafone
CityFibre (AIM: CITY) is pleased to announce the signing of a
major strategic partnership with Vodafone (the 'Agreement'). Under
the Agreement CityFibre will provide full-fibre connectivity in the
first phase to a minimum of one million UK homes in twelve existing
CityFibre towns and cities, with the potential to extend this to up
to five million UK homes (approximately 50 towns and cities and
representing 20% of the current UK broadband market) by 2025.
Vodafone has made a minimum volume-based commitment for ten years,
which scales over the period, maturing at 20% of homes passed. In
turn Vodafone has been granted a period of marketing exclusivity,
city by city, for consumer grade fibre-to-the-home ('FTTH')
services largely during the construction period. Over 20 years the
first phase of the Agreement for one million homes is estimated by
the Company to be worth over GBP500 million(1) .
The Board of CityFibre believes the Agreement represents a
transformative opportunity for the Group:
-- Commitment by CityFibre to pass 1 million homes with full
fibre connectivity across twelve existing CityFibre towns and
cities and a framework for extension to 5 million homes, which
would deliver 50% of the UK Government's target for full fibre
rollout to 10 million premises
-- Construction will commence in 2018, peak in 2020, and is
expected to be largely complete in four years
-- Fibre-to-the-home/premises ('FTTH/P') network construction
will leverage CityFibre's existing core metro networks already
present across 42 UK towns and cities, which the Company estimates
provides an addressable market of approximately 4.383 million
homes, 43,820 public sector sites, 7,300 mobile masts and 349,400
business premises
-- The Company expects the indicative cost to construct the
FTTH/P network at maturity should be in the range of GBP350 to
GBP480 per home passed (not connected)
-- Agreement de-risks CityFibre rollout of FTTH/P with minimum
volume commitments for FTTH services from Vodafone in return for
marketing exclusivity, city by city, for consumer grade FTTH
services largely during the construction period
-- In addition to the specific economics of the Agreement, the
FTTH/P network construction will unlock the benefits of ubiquitous
fibre access in all the towns and cities where it is built. It
broadens the range of CityFibre services and brings the network
closer to potential customer premises, expanding the market
opportunity across all market verticals. It will create an
infrastructure that ultimately all consumer and business service
providers can benefit from, and improves CityFibre's economics to
deliver
-- CityFibre targets a revenue yield on the net(2) capital
expenditure for the FTTH/P network of 18%-22% at maturity, being
five to seven years following construction
-- CityFibre has commenced a formal tender process with key
network construction suppliers to ensure deployment is delivered on
schedule and to budget.
(1) Based on build profile set out in the Agreement, including
revenues from connections and ancillary charges and assuming the
20% minimum volume guarantee penetration rate is maintained
throughout the subsequent ten years.
(2) net of up-front fees paid by customers for fibre
connections
Greg Mesch, CEO of CityFibre, commented:
"This agreement has unlocked the UK's full-fibre future and is a
major step forward in delivering our vision for a Gigabit Britain.
With this forward-thinking commitment from Vodafone, we have a
partner with which we can transform the digital capabilities of
millions of homes and businesses and establish an unassailable
wholesale infrastructure position across 20% of the UK broadband
market."
Conference call
A conference call for sell-side analysts will be held at 8.30am
today. For more information, or to register for the analyst call,
please contact Vigo Communications on cityfibre@vigocomms.com / 020
7830 9701.
For further information, please contact:
CityFibre Infrastructure Holdings www.cityfibre.com
plc
Greg Mesch, Chief Executive Officer Tel: 020 3510
0602
Terry Hart, Chief Financial Officer Tel: 020 3510
0602
James Enck, Investor Relations Tel: 0333 150
Morten Singleton, Investor Relations 6283
Tel: 0333 150
6270
finnCap (Nomad and Joint Broker) www.finncap.com
Stuart Andrews / Christopher Raggett Tel: 020 7220
(Corporate Finance) 0500
Simon Johnson (Corporate Broking)
Liberum (Joint Broker) www.liberum.com
Steve Pearce / Richard Bootle Tel: 020 3100
2000
Vigo Communications www.vigocomms.com
Jeremy Garcia / Fiona Henson Tel: 020 7830
9701
About CityFibre:
-- CityFibre is the national builder of Gigabit Cities. The
Company's strategy is to establish CityFibre as a leading
alternative wholesale full fibre network provider to Openreach in
its chosen markets. It has metro duct and fibre footprints in 42
towns and cities across the UK and a long distance network that
connects 22 towns and cities to data-centres in London and the UK
regions.
-- The Company has an extensive customer base spanning service
integrators, enterprise and consumer service providers and mobile
operators providing a portfolio of active and dark fibre services.
The Company estimates that CityFibre's networks have an addressable
market of approximately 43,820 public sites, 7,300 mobile masts,
349,400 businesses and 4.383 million homes.
-- CityFibre is based in London, United Kingdom, and its shares
trade on the AIM Market of the London Stock Exchange (AIM: CITY).
Further information on the Company can be found at
www.cityfibre.com
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
CityFibre strategic channel partnership with Vodafone
1. Overview of Agreement
CityFibre will commence construction in the first five to ten
towns and cities in 2018, with the minimum first phase ultimately
delivering full fibre access in twelve CityFibre towns and cities,
passing one million UK homes. The names of the first phase towns
and cities will be announced over the coming months. Construction
of the first phase is expected to be largely complete in around
four years. The total capital cost of the first phase is expected
to be in the range of GBP500 million to GBP700 million. This
includes the cost of the network rollout past one million homes,
the cost to connect up homes requesting a service, the costs to
connect up business premises within the footprint of the FTTH/P
network construction, internal capitalised labour costs and
Point-of-Presence (PoP) costs. The Agreement includes a framework
under which both parties could agree to extend the construction
programme to pass up to five million homes by 2025. During the
deployment of the first phase the parties will review progress and
consider future towns and cities beyond the first one million
homes; so the construction of subsequent phases could commence
before completion of the first phase. At five million homes,
fulfilment of the full framework would represent c.20% of the
current UK fixed residential and business broadband market and meet
50% of the Government's target of ten million homes with
gigabit-ready full fibre access.
The FTTH/P network will be fully owned by CityFibre and
ultimately made available to all service providers on a wholesale
basis. The Agreement delivers a minimum volume-based commitment for
ten years, which scales over the period, maturing at 20% of homes
passed. In turn Vodafone has been granted a period of marketing
exclusivity, city by city, for consumer grade FTTH services largely
during the construction period. Over 20 years the first phase of
the Agreement for one million homes is estimated by the Company to
be worth over GBP500 million(3) total revenues for CityFibre.
While the Agreement relates only to the delivery of FTTH, the
rollout of full fibre local networks will deliver a greater
capillarity to the CityFibre network providing significant cost
advantages to the Company's wholesale services for both dark fibre
and active (mostly Ethernet) services across all CityFibre's market
verticals. The Company will continue to sell, largely through third
party Channel Partners, into the public sector, enterprise and
mobile tower verticals. Having dense fibre networks places
CityFibre's network infrastructure in closer proximity to all types
of user premises and will deliver a cost advantage to the Company's
bidding on future business across all market verticals.
The Company will continue to extend its current metro footprint
selectively, ensuring that each new metro project is anchored by
long term contracts that deliver a satisfactory return on invested
capital and that cover a substantial portion of projected capital
expenditure. Similar policies on returns and capex coverage apply
to both new-metro and densified-metro routes to network
expansion.
The Company believes that this Agreement represents an
attractive opportunity to extend CityFibre's FTTH/P plans to
develop full fibre infrastructure to more towns and cities,
broadening its addressable market on terms that both de-risk the
funding of the FTTH/P network construction and provide an
attractive return on capital. CityFibre has already worked
extensively with Vodafone on mapping out the initial FTTH/P network
rollout, and will now set about to design, build, operate and own
the network infrastructure. Given the expanded scope of the network
construction, in 2018 the Company expects to incur c.GBP5 million
of incremental operating costs related to resourcing, network
planning and project delivery which will crystallise more rapidly
than was anticipated in a more limited deployment scenario.
The FTTH/P rollout will be facilitated by CityFibre's existing
core networks (also known as 'spines'). The cabinets for FTTH/P
(where traffic is aggregated for between 350 and 450 connected
premises) will sit directly on the core network. CityFibre's
existing ownership of core metro networks in each of the first
twelve towns and cities is therefore expected to reduce
construction time in each city by around 12 months, yielding
savings of up to 25% on the overall construction cost. FTTH/P
network construction costs are expected to be in line with the
metrics previously indicated.
CityFibre has been in consultation with a number of major civil
construction contractors, project management specialists and
component suppliers to ensure ample resourcing for a deployment
project of this scale and a formal tender process has now
commenced.
(3) Based on build profile set out in the Agreement, including
revenues from connections and ancillary charges and assuming the
20% minimum volume guarantee penetration rate is maintained
throughout the subsequent ten years.
2. Illustrative economics of FTTH/P
Following detailed planning of the FTTH/P infrastructure with
Vodafone, CityFibre expects that construction will commence in five
to ten towns and cities in 2018. The construction period will
depend on the number of premises in each town or city, with an
average duration expected to be in the region of 20 months to 24
months per town or city.
CityFibre will rollout FTTH/P on a cabinet by cabinet basis.
Each FTTH/P street cabinet is capable of providing fibre
connectivity to 350 to 450 premises per cabinet, being
approximately 90% homes and approximately 10% SME businesses per
cabinet. The total capital expenditure, based on self-build and the
selected use of Openreach duct and pole access, is estimated by the
Directors to be approximately GBP170,000 to GBP200,000 per cabinet
area (net of up-front fees paid by customers for fibre
connections), being approximately 75% to 85% fixed capital
expenditure (enabling construction of the FTTH/P infrastructure to
the boundary of all premises served by the cabinet) and 15% to 25%
success based capital expenditure (for construction from the
boundary into the premises that have subscribed for an FTTH/P
connection).
The wholesale pricing set out in the Agreement reflects the size
and duration of the commitment by Vodafone. CityFibre's wholesale
FTTH prices charged to channel partners will be competitive with
existing wholesale products provided by Openreach on its hybrid
copper/fibre infrastructure, including the 40/10 product. Wholesale
rates should also be expected to scale with the volume commitments
of channel partners. Providing a superior product at a competitive
price to that for legacy infrastructure should encourage migration
to CityFibre's next generation infrastructure.
Assuming early subscriber penetration growing in line with the
York FTTH trial and international benchmarks the Company estimates
subscriber penetration should reach at least 50% within five years,
with payback per cabinet (being the period of time it takes to
generate gross margin from connections equal to the net capital
expenditure required to construct the FTTH cabinet area) targeted
to occur within seven to nine years of the start of construction.
The revenue yield on net capital expenditure is targeted to be
approximately 18% to 22% per cabinet area at maturity, being five
to seven years following cabinet area construction. Revenue yield
is defined as the recurring annual revenue generated per cabinet,
measured against the capital expenditure per cabinet, net of
up-front fees paid by the customers for fibre connections.
Overall, the Company expects the indicative cost to construct
the FTTH/P infrastructure at maturity should be in the range of
GBP350 to GBP480 per home passed (not connected) with variability
around the particular topography and demographics of the
construction areas (for example, multi dwelling units ('MDUs')
compared to detached houses and block paving compared to soil).
Capital expenditure within each city is not expected to be linear,
and it should be anticipated that the average cost per homes passed
metric will be higher in the earliest stages of each city network
construction, dropping back to the indicated cost range at maturity
in the final stage of the city network construction. As described
above, Vodafone's minimum volume commitment will mitigate
CityFibre's deployment risk.
In addition to the specific economics of the FTTH rollout the
construction of the network will unlock the benefits of ubiquitous
fibre access across the entire CityFibre business. Having dense
fibre networks places the network infrastructure in closer
proximity to all types of user premises and will deliver a cost
advantage to the Company's tenders for future business across each
of the market verticals. Furthermore, the dense fibre network will
facilitate a broader spectrum of products and services from the
cheapest residential consumer Gigabit passive optical network
('GPON') type services to more expensive business GPON and
enterprise leased lines and tower connectivity, where more
stringent quality assurance metrics apply. In turn, the Company
expects the FTTH/P network construction will expand the addressable
market for CityFibre products and services across all market
verticals.
Accordingly, CityFibre believes that rolling out full fibre
networks will accelerate the take up of the Company's services
across enterprise FTTP, mobile tower/small cell connectivity,
Public Sector Network ('PSN') and Internet of Things market
opportunities. Furthermore, the Company believes that the ability
to continue to grow these verticals, both within the towns and
cities anchored by the Agreement with Vodafone, or in other towns
and cities not covered by this Agreement, ultimately should deliver
significant synergies across all market verticals.
3. York is currently excluded from the Agreement
The city of York is currently specifically excluded from this
Agreement, as it remains subject to the FTTH trial with Sky and
TalkTalk. The Company is pleased with the results of the trial and
CityFibre is actively engaged with its JV partners to complete the
FTTH/P network construction and fully deliver on its commitments to
the people of York. CityFibre believes that opportunities exist
both for York to become a part of the Agreement framework and for
the JV partners to access CityFibre's FTTH/P network
infrastructure, as it opens up to a full wholesale model.
4. International FTTH penetration benchmarks provide further
proof points
FTTH deployments in Europe demonstrate fast growth in user
subscriptions to full fibre broadband services. According to the
FTTH Council Europe, there will be more than 36 million FTTH
connections in use across Europe by 2019, with penetration expected
to exceed 40% of homes passed in several countries which were early
adopters of FTTH. For example, household penetration in Latvia is
expected to reach 60% by 2019, followed by Sweden (51%), Spain
(50%), Norway (49%), Romania (48%), and Portugal (46%). Alternative
fibre builders will deliver the highest proportion of FTTH lines.
(Source: 'FTTH in Europe Forecast 2016-2019: Behind The Numbers',
FTTH Council Europe, 16th May 2017).
5. Capital structure
CityFibre has a range of options available with which to fund
the network construction including the proceeds of the recent
equity placing and additional debt financing. In the first
instance, CityFibre believes that the combination of the robust
credit profile of the FTTH anchor tenant, as well as the quantum
and duration of the minimum volume commitment of the Agreement will
support the re-financing and extension of CityFibre's existing debt
facilities in 2018.
This information is provided by RNS
The company news service from the London Stock Exchange
END
AGREASFNEEEXFEF
(END) Dow Jones Newswires
November 09, 2017 02:01 ET (07:01 GMT)
Cityfibre (LSE:CITY)
Historical Stock Chart
From Apr 2024 to May 2024
Cityfibre (LSE:CITY)
Historical Stock Chart
From May 2023 to May 2024