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SiFi Networks Brings Infrastructure Financing to California With $75 Million Open-Access Fiber in Fullerton

Drew Clark

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SiFi Networks' recent announcement of a more-than $75 million open-access network in Fullerton, Calif., represents a departure from the public-private model that the company had been pursuing in the U.S. over the past four years.

SiFi is continuing its focus on an open-access network, or a network in which more than one service provider offers broadband over the same common fiber infrastructure.

However, SiFi is pivoting from a model of public-private partnerships that included some city financing and ownership. Now, it is using a fully-private investment model led by Dutch pension fund APG and Whitehelm Capital. The city is not an asset-owning stakeholder.

Fullerton is the inaugural deployment of the Smart City Investment Fund, a 250 million Euro ($281 million) infrastructure fund that will own the infrastructure asset. The fiber build will connect to about 50,000 homes in a city of 135,000. It promises to be the largest privately-funded open access network in the United States.

Although not involved financially, the city is supportive: "Having a true fiber optic network passing every part of the city is an amazing opportunity," said Fullerton City Manager Ken Domer.

In an interview at the Broadband Communities Summit in Austin, SiFi CEO Ben Bawtree-Jobson discussed the project and the company's next steps, as did the CEO of GigabitNow, one of the two internet service providers that will be operating on the network.

Building a high-capacity broadband network through a public-private partnership has involved a delicate balance between technical expertise and political support. Yet SiFi, which has been a mainstay at the Broadband Communities Summit over the past several years, had been left standing at the alter on more than one occasion.

Bawtree-Jobson spoke about SiFi's new development in Fullerton, and how it differs from other prior potential projects that didn't quite make it across the finish line.

"In [those] public-private partnerships, the city had to put a lot of skin in the game," said Bawtree-Jobson. "What we found is that despite best efforts and fantastic opportunities, there wasn't enough political weight behind those efforts to get them over the line."

Recent developments in the capital markets, including the acquisition of the British-based CityFibre in by a Goldman Sachs-based consortium in April 2018, and a partnership between CityFibre and Vodafone in November 2017, caused SiFi to readjust its strategy.

"We always had a vision of 100 percent private market-funded" broadband project, he said.

However, investors had to adjust their expectations. Prior to 18 to 24 months ago, private investors "didn't really see the inherent value in having that long-term fiber asset in the ground."

The Vodafone and Goldman Sachs deals, and other developments, "woke up a lot of the capital markets," said Bawtree-Jobson. That led to the creation of Whitehelm's Smart City Infrastructure Fund in November 2018.

The fund aims to develop independent and open access infrastructure projects. In addition to fiber to the home, these project will also promote Smart City solutions, including smart lighting, parking, waste collection and pollution control.

The Smart City Infrastructure Fund would provide "much-needed physical infrastructure that underpins Smart City developments and the use of digital intelligence for the delivery of existing urban services, while significantly improving the accessibility of high-speed broadband connectivity to all citizens of the city of Fullerton," said Graham Matthews, CEO of Whitehelm Capital, in a press release.

"When we first signed Fullerton, we were trying to work through a public-private partnership. Although that is different from the model that we see today, Fullerton is the beneficiary of their patient determination," said Bawtree-Jobson.

"We were determined to make [a broadband project] happen there," he said.

Under some of the various public-private models previously under consideration, SiFi Networks and its corporate partners would still have invested the funds necessary to construct fiber. But the city would have entered into a long-term lease with SiFi, with the city having the option to buy the asset over time.

"We knew the fundamentals were there" for an open-access infrastructure marketplace, he said. "We were just there too soon. The market had to come to us."

That market of institutional investors -- who have a different risk-reward profile than other investors -- is "starting to have the appetite" for infrastructure investment. Still, he said that "you have to have a highly risk-mitigated strategy to deploy infrastructure."

Bawtree-Jobson added that the Fullerton project will be financially successful even if it only splits the market with the city's two principal incumbents, telecom provider AT&T and cable operator Spectrum. In addition to symmetrical gigabit service, the SiFi network will be "among the most reliable networks in the world" because of "redundancy and resilience."

One provider offering internet services on the network is GigabitNow, which plans to sell symmetrical gigabit service for $79 a month, and 100 megabit symmetrical service for $60 a month. About half of that monthly revenue will go to SiFi Networks, according to CEO Stephen Milton of GigabitNow.

GigabitNow creates and operates gigabit networks for communities and homeowner associations, including the Sea Ranch project along the Pacific coast in Sonoma County, California. There, GigabitNow designed, constructed and operated the network, which was purchased by the homeowner's association.

But in Fullerton, GigabitNow is willing to only offer internet services on the network, even though it will be in competition with Ting Networks, because of a range of new opportunities it sees through SiFi, particularly along the west coast, said Milton.

For now, only two ISPs will operate on the network. Their tenure there will be determined by performance, including reliability, customer service and take rate, said Bawtree-Jobson.

Whether or not SiFi will add others “depends on what value-add the other ISPs will provide to the network,” he said. “You don’t want to create an unsustainable environment for ISPs on the network.”

(Photo of Ben Bawtree-Jobson by Drew Clark at Broadband Communities Summit.)

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