The European fibre landscape has experienced a "gold rush" over the past decade. Fuelled by cheap capital and ambitious digital agendas, hundreds of Alternative Networks (AltNets) have emerged across the continent, from the United Kingdom to Germany. Over €150 billion has been invested in fibre infrastructure since 2015 [1].
However, the macroeconomic tide has turned. Rising interest rates (ECB rate: 4.5% in 2024 versus 0% in 2020), inflation in deployment costs (+35% since 2020), and overbuild challenges are forcing a reckoning. The era of "build at any cost" is over; the era of consolidation has begun.
This article examines the drivers of consolidation, likely transaction structures, and strategic implications for investors, operators, and policymakers.
The Fragmentation Problem
In markets such as the United Kingdom and Germany, fragmentation has reached unsustainable levels. The UK alone has over 150 AltNets, whilst Germany counts 400+ local fibre operators [2].
European Fibre Market Fragmentation (2024)
| Market | Number of AltNets | Incumbent Share | Overbuild Rate | Average Take-Up |
|---|---|---|---|---|
| United Kingdom | 150+ | 35% (Openreach) | 45% (urban) | 22% |
| Germany | 400+ | 42% (Deutsche Telekom) | 38% | 28% |
| France | 80+ | 55% (Orange) | 25% | 35% |
| Spain | 60+ | 48% (Telefónica) | 30% | 32% |
| Italy | 120+ | 38% (TIM/Open Fiber) | 52% | 26% |
Consequences of Fragmentation
Inefficient Capital Allocation: Duplicate infrastructure in dense areas whilst rural areas remain underserved. In London, seven different operators pass the same streets in Zones 1-2, whilst rural Wales has less than 10% fibre coverage.
Low Penetration Rates: Consumer confusion and aggressive pricing wars dampen take-up rates. UK average take-up stands at 22% versus 35% in France and 45% in Spain. Root cause: consumers overwhelmed by choice, unclear value proposition versus incumbent copper services.
Operational Sub-Scale: Many AltNets lack scale to negotiate effectively with ISPs or achieve operational efficiency. Operators with fewer than 200,000 homes passed struggle to achieve positive EBITDA.
Investor Fatigue: Continued capital calls without clear path to profitability strain investor relationships.
Drivers of Consolidation
Three factors are accelerating M&A activity. European fibre M&A volume reached €18 billion in 2024 (+120% versus 2023), with 45 transactions [3].
Driver One: Cost of Capital Shock
| Metric | 2020 | 2024 | Impact |
|---|---|---|---|
| ECB base rate | 0% | 4.5% | +450 bps |
| Fibre project IRR | 12-15% | 8-10% | -400 bps |
| Debt/equity ratio | 70/30 | 50/50 | Equity dilution |
| WACC | 4.5% | 7.8% | +330 bps |
The interest rate shock has fundamentally altered fibre economics. Projects that were attractive at 0% rates become marginal or unviable at 4.5%. Many AltNets financed with floating-rate debt face covenant breaches as interest costs consume operating cash flow.
Implication: Operators with weak balance sheets become forced sellers; well-capitalised acquirers gain negotiating leverage.
Driver Two: Overbuild Economics
Overbuild—multiple networks serving the same premises—destroys value for all participants.
Overbuild Impact Analysis:
| Scenario | Take-Up Rate | Revenue/HP | IRR Impact |
|---|---|---|---|
| No overbuild | 45% | €180/year | Baseline |
| 2 networks | 28% | €112/year | -6pp IRR |
| 3+ networks | 18% | €72/year | -10pp IRR |
In heavily overbuilt areas, no operator achieves economic returns. Consolidation—merging overlapping networks—is the only path to value recovery.
Case Study: UK Urban Overbuild
In Manchester city centre, five AltNets compete with Openreach:
- Combined homes passed: 850,000
- Unique homes (excluding overlap): 320,000
- Implied overbuild rate: 62%
- Average take-up across all operators: 19%
Consolidation of three operators would reduce overbuild to 25% and increase combined take-up to an estimated 32%.
Driver Three: Scale Economics
Fibre networks exhibit significant scale economies across multiple dimensions:
| Function | Sub-Scale Cost | At-Scale Cost | Scale Threshold |
|---|---|---|---|
| Network operations | £45/HP/year | £28/HP/year | 500k HP |
| Customer acquisition | £180/customer | £120/customer | 200k customers |
| ISP negotiation | 65% revenue share | 75% revenue share | 300k HP |
| Procurement | Index | -15% versus index | £50M annual spend |
Operators below scale thresholds face structural cost disadvantages that consolidation can address.
Transaction Structures
Fibre consolidation transactions take several forms, each with distinct strategic rationales.
Structure One: Full Acquisition
Characteristics: Acquirer purchases 100% of target equity; target brand typically retired.
Rationale: Maximum synergy capture; complete operational control.
Valuation Range: 8-12x EV/EBITDA for profitable operators; 0.8-1.2x EV/HP for pre-profit operators.
Example: Nexfibre's acquisition of Trooli (2024, £180M, 120,000 HP) at approximately £1,500/HP.
Structure Two: Merger of Equals
Characteristics: Two operators combine; shared governance; new combined entity.
Rationale: Neither party has resources for outright acquisition; combined scale benefits both.
Valuation: Relative contribution basis; premium for operational control.
Example: CityFibre-Gigaclear discussions (ultimately unsuccessful) would have created 3M HP network.
Structure Three: Network Swap
Characteristics: Operators exchange geographic territories to reduce overlap.
Rationale: Eliminates overbuild without cash transaction; both parties benefit.
Valuation: Based on homes passed, take-up rates, and strategic value of territories.
Example: Regional swaps between UK AltNets in overlapping territories (multiple transactions, 2023-2024).
Structure Four: Distressed Acquisition
Characteristics: Acquisition of operator in financial difficulty at significant discount.
Rationale: Opportunistic value capture; may involve debt restructuring.
Valuation Range: 0.3-0.6x EV/HP (significant discount to replacement cost).
Example: Several UK AltNets entered administration or restructuring in 2024, creating acquisition opportunities.
Valuation Framework
Fibre asset valuation requires consideration of multiple factors beyond traditional EBITDA multiples.
Key Valuation Metrics
| Metric | Definition | Benchmark Range | Application |
|---|---|---|---|
| EV/HP | Enterprise value per home passed | £800-1,500 | Early-stage, pre-profit |
| EV/HC | Enterprise value per home connected | £2,500-4,000 | Growing operators |
| EV/EBITDA | Enterprise value to EBITDA | 10-15x | Mature, profitable |
| IRR | Internal rate of return | 8-12% | Investment decision |
Valuation Adjustments
| Factor | Impact on Value | Rationale |
|---|---|---|
| Overbuild exposure | -10% to -30% | Reduced take-up potential |
| Contract quality | +/-15% | ISP terms, duration |
| Network quality | +/-10% | Technology, maintenance state |
| Geographic concentration | +10% | Operational efficiency |
| Regulatory risk | -5% to -15% | Open access mandates |
Case Study: Valuation Analysis
EXXING advised on the acquisition of a 180,000 HP AltNet in the English Midlands:
| Metric | Target | Adjustment | Adjusted Value |
|---|---|---|---|
| Homes passed | 180,000 | — | 180,000 |
| Benchmark EV/HP | £1,200 | — | £216M |
| Overbuild adjustment | — | -18% (35% overlap) | -£39M |
| Contract quality | — | +8% (strong ISP terms) | +£17M |
| Network quality | — | -5% (maintenance backlog) | -£11M |
| Adjusted EV | — | — | £183M |
The transaction closed at £178M, representing £989/HP—a 17% discount to unadjusted benchmark.
Strategic Implications
For AltNet Operators
Assess strategic options early: Operators should evaluate their position before financial pressure forces suboptimal outcomes.
Decision Framework:
| Position | Recommended Strategy |
|---|---|
| Scale leader (>500k HP) | Acquire smaller operators; drive consolidation |
| Mid-scale (200-500k HP) | Seek merger partner; consider geographic swaps |
| Sub-scale (<200k HP) | Prepare for sale; maximise operational metrics |
| Distressed | Engage restructuring advisors; seek strategic buyer |
Value Maximisation Tactics:
- Improve take-up rates through focused sales efforts
- Extend and improve ISP contracts
- Document network quality and maintenance history
- Prepare comprehensive data room for due diligence
For Investors
Portfolio Strategy: Infrastructure investors should anticipate consolidation and position portfolios accordingly.
Recommendations:
- Avoid sub-scale investments: New investments should target operators with clear path to 500k+ HP
- Support consolidation: Encourage portfolio companies to pursue accretive acquisitions
- Prepare for exits: Position assets for sale to strategic acquirers or larger platforms
- Opportunistic acquisition: Build war chest for distressed opportunities
Expected Returns by Strategy:
| Strategy | Target IRR | Risk Profile |
|---|---|---|
| Platform building | 12-15% | Medium |
| Consolidation play | 15-20% | Medium-High |
| Distressed acquisition | 20-25% | High |
| Passive hold | 6-10% | Low-Medium |
For Policymakers
Consolidation raises policy questions around competition and coverage obligations.
Key Considerations:
| Issue | Risk | Mitigation |
|---|---|---|
| Reduced competition | Higher prices post-consolidation | Merger conditions, price monitoring |
| Coverage commitments | Acquirers may abandon rural plans | Coverage obligations in approvals |
| Open access | Consolidated networks may restrict access | Regulatory requirements |
| Employment | Job losses from synergy realisation | Transition support |
Recommended Approach: Facilitate consolidation that improves market sustainability whilst protecting consumer interests through appropriate conditions.
Market Outlook
Short-Term (2025-2026)
- Transaction volume: €20-25 billion annually
- Primary drivers: Distressed sales, overbuild resolution
- Key markets: UK, Germany, Italy
- Valuation trend: Declining (buyer's market)
Medium-Term (2027-2028)
- Transaction volume: €15-20 billion annually
- Primary drivers: Scale building, platform consolidation
- Market structure: 3-5 major platforms per country
- Valuation trend: Stabilising
Long-Term (2029+)
- Transaction volume: €5-10 billion annually
- Primary drivers: Cross-border consolidation, incumbent M&A
- Market structure: Pan-European platforms emerging
- Valuation trend: Premium for scale assets
Conclusion
European fibre consolidation is not a question of "if" but "when" and "how". The combination of rising capital costs, overbuild economics, and scale imperatives makes the current fragmented structure unsustainable.
Key takeaways:
- Consolidation is inevitable: Market structure will rationalise over 3-5 years
- Early movers benefit: Operators and investors who act proactively capture value
- Scale matters: Target 500k+ HP for sustainable economics
- Execution is critical: Transaction structuring and integration determine outcomes
EXXING advises investors and operators on fibre M&A strategy, from market assessment through transaction execution and post-merger integration.
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References
[1] FTTH Council Europe (2024). European FTTH/B Market Panorama. FTTH Council Europe.
[2] Point Topic (2024). European Broadband Scorecard Q3 2024. Point Topic.
[3] Analysys Mason (2024). European Fibre M&A Report 2024. Analysys Mason.
[4] PwC (2024). Telecommunications M&A Insights. PricewaterhouseCoopers.
[5] European Investment Bank (2024). Digital Infrastructure Investment Report. EIB.
