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Upgrading the UK’s digital infrastructure

15 Sep 2021

“The UK broadband network is currently experiencing a once-in-a-generation transition and Octopus believes that this presents an opportunity for both entrepreneurs and investors.”

Rob Skinner, Head of Alternative Investments

Octopus is helping to upgrade the UK’s digital infrastructure. Rob Skinner, Head of Alternative Investments at Octopus, explains why the opportunity is so compelling. 

In April this year, Jurassic Fibre – a digital infrastructure company backed by Octopus’ investors – received an urgent call. It was from Greendale Group, manager of a business park in Exeter. 

 “We’ve been asked by the NHS to develop the Covid-19 Vaccination Centre for the Exeter region.” 

Within three weeks of this phone call, Greendale had built the Centre and Jurassic Fibre had connected it to full fibre broadband. 

The “fourth utility”

Fast broadband is critical to daily life. We were certainly reminded of this in 2020 when millions of us began working from home due to the global pandemic.  

For the Greendale Business Park Vaccination Centre, connection to a full fibre broadband network was essential to its transformation from a patch of grass on the outskirts of Exeter, to a pop-up vaccine clinic. That clinic has since contributed to the thousands of people vaccinated in Exeter. 

Jurassic Fibre has provided the connectivity which lets NHS staff process patients, monitor vaccines and even allows hundreds of patients to upload their #Covidselfie to their Instagram accounts after their jabs. 

But there’s a problem. This high-speed connectivity isn’t available to everyone in the UK and that needs to change. 

Full fibre is the future 

There are huge limitations to the incumbent ‘fibre to the cabinet’ model. The last mile of copper cables from the distribution point, or ‘cabinet’, to the home cannot match the speeds of the fibre-optic cables that feed into the cabinet.  

The infrastructure is just about holding up but is creaking at the seams. Imagine a family of four on an average evening – Mum and Dad streaming on Netflix while simultaneously downloading content on their phones, one teenage kid plays online computer games upstairs, the other uses Wikipedia to finish their homework. Copper wires can’t cope with these levels of usage, and that’s just on an average day. 

In March 2020, the UK public was instructed to remain indoors and work from home. Three days later, media giants Netflix, Amazon Prime and YouTube all agreed to lower their stream quality amid concerns from officials about the ability of the broadband infrastructure to cope with the transition to home working. 

While the networks survived the surge in usage, the UK’s infrastructure is creaking and needs to account for the new ways of working, living, and interacting that have been accelerated by the pandemic.  

We believe Full fibre is the answer. This involves connecting homes and businesses directly to a fibre-optic broadband network. It allows for ten-gigabit upload and download speeds and is unaffected by distance from the cabinet or the number of users in the home. This is more than ten times faster than incumbent technologies. 

Despite the obvious need for full fibre, the UK lags behind many developed countries in its full fibre rollout. As of the end of 2020 only 22% of UK homes had access to full fibre. This is far behind countries such as Denmark (75%), Portugal (88%), Spain (90%+) and Sweden (82%).¹

On behalf of our investors, Octopus is backing businesses who are closing this gap.

Octopus is one of the UK’s major full fibre investment managers  

We made our first step into the sector when Fern Trading Limited, a company managed by Octopus Investments, backed Jurassic Fibre in 2019.  Jurassic Fibre is a full fibre network developer and operator based in Exeter. 

After Jurassic, Fern Trading went on to acquire two more connectivity providers in Swish Fibre and Giganet, both of which are building full fibre networks in the South of England. 

Through these acquisitions, we’ve relieved these businesses of the burden of continuous fundraising and given them space to collaborate and focus on their mission. By 2025, we expect these companies to have brought fibre broadband to hundreds of thousands of people across the UK. 

Full fibre presents a huge opportunity for institutional investors

Despite having already committed nearly £1 billion of our investors’ money into full fibre networks, Octopus still see a huge opportunity within the sector for institutional investors comfortable with the associated risks. 

There are over 80 connectivity providers who are actively building full fibre broadband networks across the UK in areas which are underserved by the large incumbents. 

Many of these companies have only raised limited start-up capital allowing them to build their operations base and deliver the initial proof-of-concept networks. Over the course of 2021 and 2022 many of them will be looking to raise further funding to deliver their business plans.  

Have we seen this before?

Once these networks are built, we expect that they will quickly build up a large customer base as consumers move from copper to fibre. In addition to this large customer base there is minimal risk of obsolescence or substitution – we believe that customers are unlikely to change back to copper once they have tasted full fibre. This means that when these networks are mature, we believe that they will be generating predictable inflation-linked revenues with relatively low market volatility.

There are parallels to when we began investing in solar. Octopus and our investors built and operated over 100 solar sites across the UK. A few years later, the sites had demonstrated that they were able to deliver strong and stable revenues. As yielding assets UK solar plants swiftly became top targets for global institutional investors– this provided an opportunity for many of our early investors to exit.

Octopus sees a similar opportunity in Full Fibre. Funding these network rollouts provides institutions with the opportunity to invest into the asset class, which is well established in multiple geographies, and enjoys the potential benefits of entering the UK market at a point where it is still dynamic. 

Taking the next step

The UK broadband network is currently experiencing a once-in-a-generation transition and Octopus believes that this presents an opportunity for both entrepreneurs and investors.  Octopus is well placed to help companies looking for capital and market expertise; and investors who wish to invest in the UK Full Fibre broadband.  

If you’d like to speak to one of the team about Full Fibre or have a question about Octopus, please get in touch.

Useful insights

Digital Infrastructure Capability

The Octopus Digital Infrastructure Team is backing businesses in the UK that are upgrading the UK’s digital infrastructure.

As seen in The Times: Octopus Digital Infrastructure capability

A summary of our Digital Infrastructure capability as featured in The Times.

More people than ever rely on a fast internet connection

Prospect Magazine: Rob Skinner writes about how Covid-19 has transformed the way we use the internet.

¹ Credit Suisse Research on European Fibre Networks, Sept 2021

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