Sky has reaffirmed its dedication to enhancing broadband services by utilizing CityFibre’s robust network, as the UK’s largest alternative network provider, CityFibre, seeks to raise £1.5 billion in fresh capital.

Last week, executives from Sky met with lenders to CityFibre, including prominent financial institutions such as NatWest and ING. This meeting was crucial as it served to confirm Sky’s plans to transition some of its existing broadband customers onto CityFibre’s network within the year, marking a significant strategic move in the competitive telecommunications landscape.

Currently, Sky boasts approximately 5.7 million broadband customers. Unlike several of its competitors, Sky lacks its own infrastructure and primarily relies on BT’s Openreach network. By forging a partnership with CityFibre, which operates an independent broadband network, Sky aims to diversify its service offerings and expand its customer base.

The lenders present at the meeting were keen to obtain assurances regarding Sky’s strategic plans, especially as CityFibre is on the brink of a significant fundraising effort, targeting an additional £1 billion in debt financing along with £500 million in new equity investment.

During this important meeting, Sky reiterated its commitment to the partnership, which had initially been announced in August. This reinforcement is expected to instill confidence in the lenders regarding the future collaboration between the two companies.

CityFibre, which currently operates with a staggering £3.9 billion in debt, reported in its 2023 financial results that without securing fresh funds, the company would deplete its cash reserves by mid-2025. This dire situation stems from substantial expenditures incurred in building its extensive network infrastructure.

The collaboration with Sky is anticipated to enhance the financial returns CityFibre can generate from its network. Presently, the network has the capacity to provide services to over 4.3 million homes; however, it has only managed to attract around 518,000 customers so far. As an alternative network provider, CityFibre aims to disrupt the current dominance of established players like Openreach and Virgin Media in the UK telecommunications market.

In a recent discussion with the Financial Times, CityFibre expressed optimism about its financial standing, highlighting adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of £5 million projected for 2024. The company is also in negotiations to secure £500 million of equity from its shareholders, including the Abu Dhabi sovereign wealth fund, Mubadala.

According to sources close to the negotiations, the new equity and debt financing arrangements are expected to be finalized within the next couple of months, providing much-needed financial support for CityFibre.

Founded in 2011 by Chief Executive Greg Mesch, CityFibre is among several alternative network providers established to challenge the duopoly of BT’s Openreach and Virgin Media O2. However, rising interest rates have significantly increased the costs associated with taking on the debt needed to expand network infrastructures.

Industry experts have weighed in on the implications of the Sky deal. Matt Howett, founder of the consultancy firm Assembly Research, noted that securing a large broadband provider such as Sky was a pivotal moment for CityFibre and could determine the success or failure of alternative network providers in the market.

Karen Egan, head of telecoms at Enders Analysis, mentioned that the extent of Sky’s commitment had previously been somewhat ambiguous. She emphasized that any clear indications of Sky's full support for CityFibre would be warmly welcomed in the industry.

Although Sky has not committed to any minimum customer number targets, insiders suggest that tens of thousands of Sky customers could begin utilizing CityFibre’s network by the end of May, with a complete rollout expected in the latter half of the year. This transition could significantly bolster CityFibre’s market position and customer base.

Representatives from CityFibre, NatWest, ING, and Sky declined to comment on the discussions.