The UK fibre infrastructure industry as a whole has seen an increasing focus on establishing ubiquitous broadband connectivity across the UK.
As recently as four or five years ago, the main players in the broadband fibre provider space were Openreach and Virgin Media. This grouping of large players has now been joined by CityFibre, Hyperoptic, Gigaclear, and Community Fibre, all backed by private equity investment.
That’s only one of the changes that’s occurred in the market. A far bigger one is that the overall number of participants has mushroomed at breath-taking speed – with the result that today there are 120-plus altnets (alternative networks) up and running in the UK, all vying for space and landgrab.
The effect is that the market’s dynamics have changed beyond recognition. Investment has flooded into the industry, and at a time when interest rates were at historically low levels. But with rates on the rise, a lot of altnets have been struggling to generate revenues, profits and shareholder value in return for their investments.
This is creating heightened pressure for investors, who are having real difficulty valuing their fibre assets due to a lack of clarity about network builds. In particular, a lot of altnets are “overbuilding” into areas that are already well-served, while failing to actually reach the people they were originally targeting.
Inevitably, this has knocked on to the industry’s requirements in terms of talent, triggering a need for change and transformation. There is mounting pressure on the way leadership teams think, trade and operate, prompting many investors to consider major changes in the executive leadership – CEO, COO and CFO.
The need for commercially minded leaders
Many altnets are still led and run by their founders. By nature, these tend to be entrepreneurial individuals who are effective builders and have a good grasp of operations. But they often fail to make the transition to being commercially orientated, growth-minded chief executives.
As a result, they struggle to commercialise the asset that they’re presiding over. Many fibre CEOs are still assessing their company’s performance on how many homes their network passes, when the focus today should be on how many it’s signed up. Hardly surprising then that we’re seeing clients focus increasingly on replacing the founder CEO with someone who has experience of scaling an asset and managing growth.
Another emerging shift is rising remuneration levels, reflecting the dearth of high-quality leadership talent in the UK and the resulting extreme competition for the best candidates. These same factors are causing owners to widen their searches to international markets, looking overseas to fill both CEO and CFO roles.
The shifts in the fibre environment have further to run – much further. Following the massive expansion in the number of players, there’s every likelihood that many of these assets will be consolidated over the next few years, with the current complement of around 120 providers set to be whittled down to 20 to 30.
This will no doubt be a painful process. There’ll be a lot of disappointed leadership teams finding that the promises of big incentives and payouts that convinced them to join have come to nothing. There’ll be disappointment too among investors who’ve missed out on the returns they anticipated.
This is creating an incredibly uncertain picture for the sector that’s seen scores of businesses spring up everywhere – with some winning and some failing. A big factor in this comes down to leadership talent.
How can PE investors ensure they recruit the right talent to lead their fibre companies to a successful future? One overarching recommendation across all industries is to invest in a pre-hiring assessment process. Recent high-profile events have underlined the importance of understanding candidates’ character and behaviours before appointing them to senior leadership roles. In-depth assessment processes that include psychometric testing are becoming progressively more important in making the right choice.
Beyond this, investors should consider three factors when looking to swap out top teams or when searching for a new CEO, COO, CFO or other C-level executive.
- Expand the background criteria and experience required. Rather than limiting the scope of your search to the telecoms industry, open up your criteria to include people from broader subscription-based organisations like utilities or from online retailers. Given the dearth of quality in the market, it pays to be bold, brave and lateral in your thinking around what capabilities and background might make an individual the best fit.
- Improve remuneration packages. Over the past decade there has been a perception that you could underpay the CEO and CFO in terms of base salary compared to a corporate role by promising them “jam tomorrow”. Such promises no longer wash. To really move the dial on growth, you’ll need to bring in proper grown-up talent, with comparable pay to those in a big corporate.
- Look beyond the local boundaries. Be bolder and more creative about bringing individuals in from other overseas markets. For example, take a look at Italy, Spain and Germany: these countries all have great assets and access to top talent, often proving to be rich hunting-grounds for our searches.
Future-proof your assets with the right talent
While the UK’s fibre infrastructure industry has changed radically in the past few years, the biggest test for management teams is yet to come, as the sector consolidates down to a far smaller handful of players. With the focus of investment switching back from mobile to fixed infrastructure, there’ll be a drive to identify new uses for fibre links, including supporting EV charging and other connected services.
Do your portfolio companies in the fibre sector have the right leadership in place to pilot them through the turbulence ahead – and emerge from it on a higher trajectory than their competitors? If not, it’s time to make some changes in the cockpit. The right talent is out there.
TO LEARN MORE ABOUT HOW WE’RE HELPING CLIENTS ACROSS THIS SPACE, PLEASE GET IN TOUCH WITH JAMES LEWIS
By James Lewis