UK's CityFibre buys TalkTalk's York fibre network for 200 million pounds

LONDON (Reuters) - Britain's TalkTalk TALK.L has agreed to sell its fibre-to-the-premises (FTPP) network, which has rolled out ultra-fast broadband connections in the northern city of York, to Goldman Sachs-backed CityFibre for 200 million pounds ($260 million).

FILE PHOTO: A woman speaks on her phone as she passes a branded logo outside the Talktalk headquarters in London, Britain May 10, 2017. REUTERS/Neil Hall

TalkTalk also agreed a wholesale deal with CityFibre, which will see it switch its residential and business customers to CityFibre’s FTTP networks, helping underpin the fibre network operator’s expansion.

TalkTalk started laying its own fibre optic cables in York in a trial, initially partnering rival Sky and CityFibre, to challenge BT BT.L, the national network operator.

BT has been criticised for dragging its heels in building its own fibre-to-the-premises networks.

TalkTalk rolled the FTTP operation, which has connected 49,000 homes to date, into a new company, FibreNation, in 2018, which has ambitions to build a network serving 3 million premises.

TalkTalk CEO Tristia Harrison, who is focusing the company on low-priced broadband, said it had been working on the deal for a long time.

“We think the value is good, it’s more than three times the investment that we’ve made,” she said in an interview.

A deal was delayed late last year when the opposition Labour Party pledged to nationalise BT’s Openreach network if it won a December election, a move that would have upended the broadband market. Boris Johnson’s Conservatives later won a decisive victory.

TalkTalk’s shares were trading 0.5% lower at 114 pence in early trade, as analysts at Jefferies said the deal terms were in line with expectations.

Lazard LAZ.N acted as sole financial adviser to TalkTalk on the deal, which will allow the company to cut its debt load while retaining access to a FTTP network for its customer base.

CityFibre CEO Greg Mesch said buying FibreNation established CityFibre as the UK's third national digital infrastructure platform, behind Openreach and Liberty Global-owned LBTYA.O Virgin Media, and a major partner in the government's ambition to roll out FTTP nationwide by 2025.

“The UK is a service-based economy, and this runs best on full fibre,” he said. “Ensuring national coverage is critical and this can only be achieved by driving infrastructure competition at scale. This deal demonstrates the appetite from industry to see it established.”

CityFibre, which is owned by Antin Infrastructure Partners and Goldman Sachs’ West Street Infrastructure Partners, will add FibreNation’s ambition of reaching 3 million premises by the middle of the decade to its own 5 million target.

“Five million was roughly 60 towns, 8 million is roughly across 100 towns and cities,” Mesch said. “Our investment commitment moves up from 2.5 billion (pounds) to now 4 billion roughly of investment.”

Mesch said CityFibre had reworked an existing wholesale agreement with Vodafone VOD.L to allow CityFibre to open up its networks to other consumer broadband providers sooner than planned.

Additional reporting by Pamela Barbaglia; editing by James Davey and Kate Holton