DIIF: unlocking funding for full fibre networks

Ultrafast broadband is making its way to the UK in coming years

A briefing on the UK Government’s infrastructure investment into future fibre deployment and broadband connectivity.

The UK Government launched its much anticipated £400 million Digital Infrastructure Investment Fund (DIIF) on 3rd July 2017. The fund is intended to “unlock over £1 billion for full fibre broadband, and kick-start better broadband connections across the country,” according to HM Treasury. It will be managed and invested on a commercial basis by private sector partners, generating a commercial return for the Government, and is designed to ignite interest from private finance for investments in the sector, resulting in more alternative providers entering and expanding within the market. Point Topic attended an event held at HM Treasury offices on 5th July 2017 at which prospective applicants could meet fund managers.

Background

DIIF was officially launched in Peterborough on 3rd July 2017 by the Exchequer Secretary to the Treasury Andrew Jones MP.  The aim of the £400 million fund is to help boost market ambitions to deploy full fibre access to millions more premises by 2020. The fund is in addition to the Government’s £23 billion National Productivity Investment Fund designed to improve the country’s productivity, particularly in the light of Brexit.

Fund managers

There are three fund managers involved – Infracapital will look at equity investment projects, M&G listed and unlisted debt, and Amber Infrastructure will invest across the capital structure.

Amber has set up a separate and standalone fund for the DIIF, called the National Digital Infrastructure Fund (NDIF), which is able to invest across the capital structure from common equity to senior debt with a blended medium-to-low risk return profile. NDIF will be specifically targeting investment in fibre-optic networks and related businesses to boost the deployment of full fibre connections and ultrafast broadband access across the UK.

M&G Investments has also been appointed to manage a portion of the DIIF. Investing the funds will be M&G’s Infracapital business, which has partnered with Cameron Barney, a UK-based merchant bank financing infrastructure and technology-centric companies, and M&G’s infrastructure debt team.

Infracapital, which invests in unlisted equity infrastructure projects and companies, will jointly launch a platform, called Digital Infrastructure Investment Partners (DIIP), to invest in full fibre broadband infrastructure in the UK with Cameron Barney.

Encouraging full fibre

According to Deputy-Chief Executive of the IPA and Government Head of Project Finance, Matthew Vickerstaff,

“Full fibre digital communication networks will be a crucial part of our future infrastructure and will require substantial investment from the private sector”.

It is also clear the Treasury is looking for a third full fibre network for the country. The IPA’s Bradley said the fund would increase initiatives for full fibre with institutional partnership for the alternative network operators, effectively “becoming this country’s third national full fibre network”. Key aims are to accelerate rollout and scaling up, enable new phases more quickly, and to encourage other  investors to enter the sector.

ultrafast and altnetsUltrafast penetration LSOAB4RN

The above maps show the penetration of ultrafast broadband in an area (LSOA) to June, 2016 . In general, darker areas represent higher penetration rate. The first map indicates the distribution of Altnets within the area by postcode. For example, ultrafast penetration can be up to 80 per cent in some of the B4RN postcodes/areas.

With the UK starting from a low base we expect ultrafast, via both cable and FTTP/B, to spread through the country in the coming years. The recent consultation from BT and the launch of the DIIF are the strongest indicators yet that ‘full fibre’ and other ultrafast technologies will be dominant in the next decade.

Summary

This short report outlines the DIIF and initial observations of some of those involved. In summary:

  • The DIIF has been welcomed by many in the industry including INCA, the Independent Networks Co-operative Association, which is “very pleased and actively engaging with fund managers”. Point Topic knows of several alternative network operators considering the finance possibilities on offer.
  • The DIIF potentially means a new era for full fibre, not only because it promises easier access to funding but because it may lead to new structures and approaches not seen before in equity and debt markets.
  • Fund managers stress they are looking to parties other than just altnets, including local authorities, utility providers and perhaps even community groups to put forward plans. They are actively seeking new ideas and partnerships.
  • At the very least the DIIF gives the full fibre sector greater exposure to the investment community and helps the shift in regarding fibre as an infrastructure rather than tech/telecoms investment.

Get access to the full report

If you found this free sample useful and think you would benefit from our full report, please telephone +44 (0)20 3301 3303 or e-mail simona@point-topic.comThe full report is also available to subscribers of Point Topic’s UK Plus service.

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