City-focused fibre broadband operator CityFibre Infrastructure (CITY:AIM) is on a growth path as it seals a landmark agreement to bring ultra-fast broadband to up to 5m UK homes by 2025.

The £500m-plus 20-year contract with mobile network giant Vodafone (VOD) will bring full fibre-to-the-home (FTTH), with Vodafone guaranteeing connections to at least 20% of homes by the end of the first 10 years.

One million homes in 12 UK cities currently supplied by CityFibre will have their fibre connection upgraded by 2021. The agreement has an option to expand this amount to 5m homes by 2025.

Big jump in download speeds

The network will triple maximum broadband speeds available in the UK. Virgin Media’s fibre broadband can reach download speeds of up to 300Mbps (megabits per second). The average broadband speed in the UK is around 23Mbps.

Download speeds on the gigabit fibre networks can reach as high as 1,000Mbps. This would allow users to download a two-hour high definition movie in less than 30 seconds.

Work will begin in 2018 with first customers likely to get switched on shortly after, with Vodafone retaining exclusive marketing rights for the first two to four years.

In theory, the new network would deliver half of the UK Government’s full fibre 10m homes and businesses target. It could also be used to provide fibre backhaul connections needed to deliver next generation (5G) mobile services.

Widespread city support

Most analysts are fans of the new agreement, with Peel Hunt’s telecoms team saying ‘this is a huge tick in our minds in terms of validation for CityFibre, and completely removes the overhang from the rumours around Vodafone entering the FTTH market.’

That latter point refers to previous speculation that Vodafone may have entered the UK fibre optic market as a competitor to Cityfibre rather than as a partner.

But some analysts have raised questions about the company’s cost assumptions. CityFibre estimates a £415 average cost to connect each home. But Numis analysts point towards BT’s (BT.A) Openreach estimates which are 8% higher at £450 per connected home, and Virgin Media’s £630 network build assumptions.

One possible answer to that discrepancy is CityFibre’s use of what is called ‘dark fibre’. This is fibre optic cabling already in the ground that is not currently being used. This is either bought or rented and saves considerable civil engineering costs.

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