20th Aug 2024 10:19
(Alliance News) - Shares in BT Group fell on Tuesday after Sky and CityFibre agreed a long-term partnership that will see Sky launch broadband services on the CityFibre network.
In response, shares in London-based telecommunications provider BT slid 5.5% to 137.55 pence each in London. It was the worst performing stock in the FTSE 100 which was down 0.6%.
Sky’s full fibre broadband is expected to be available on CityFibre’s full fibre network from next year, CityFibre said in a statement.
Longer term, this will include over 1.3 million homes in hard-to-reach areas through CityFibre’s participation in the Government’s project gigabit programme.
CityFibre Chief Executive Greg Mesch said: "This partnership with Sky is a huge vote of confidence in our business and has cemented CityFibre’s position as the UK’s third digital infrastructure platform. With demand for digital connectivity continuing to grow, CityFibre’s network can provide the quality and reliability that people need and the infrastructure competition the UK deserves."
CityFibre currently reaches 3.8 million premises across the country and is aiming to hit 8 million by the end of next year.
Hargreaves Lansdown Senior Equity Analyst Matt Britzman explained Sky is the largest external partner for BT's Openreach business.
"There are genuine concerns about [BT's] reliance on a single customer, but a deal with CityFibre is unlikely to have a major impact on the current relationship," he felt.
"CityFibre is a struggling business, desperate to show its lenders that it has something tangible in the works, it’s also more focused on rural areas where the likes of Openreach aren’t building out fibre networks – so there’s likely limited cannibalisation of Openreach’s existing business with Sky."
AJ Bell Head of Financial Analysis Danni Hewson agreed.
"CityFibre’s modest scale and focus on rural areas suggest it shouldn’t be a huge issue," she stated.
The Telegraph initially reported news of the link-up between CityFibre and Sky.
It said while there is some overlap between the rival networks, it is expected that Sky will use the CityFibre deal to expand its customer base in areas that Openreach does not currently cover.
In February, telecom analysts at Barclays warned of the growing threat to BT from altnet broadband competitors, such as CityFibre or Hyperoptic.
"We do see Openreach gradually ceding share to altnets...resulting in Openreach nationwide market share settling around 60% in the medium term [versus] 74% at present," the broker said in a note to clients.
This implies around two million lost customers between now and 2030, "which supports our Openreach valuation of GBP30 billion", said Barclays.
Nonetheless, "we expect the other market players will struggle to create meaningful scale or value, unless they can grow market share either organically or inorganically", the broker added.
By Jeremy Cutler, Alliance News reporter
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