Macquarie Asset Management (MAM) is reviewing strategic options for its UK regional telecoms business KCOM as it looks to position itself for the major consolidation expected in the fibre sector, sources said.

The Australian asset manager believes its position as an established profitable telecom company among mostly loss-making newer fibre networks is an advantage as it looks to participate in M&A activity, one of the sources said. Options include a sale of KCOM, mergers with other fibre network operators or a capital raise, another of the sources said.

Macquarie declined to comment.

MAM, then known as Macquarie Infrastructure and Real Assets, acquired KCOM in 2019 in a take-private acquisition after winning a bidding war against the Universities Superannuation Scheme (USS).

Uniquely in Great Britain, KCOM is the incumbent telecom company providing fixed line and broadband services in the only part of the island that is not served by BT, the Yorkshire city of Hull.

Since acquiring KCOM, Macquarie has invested in the business’s infrastructure to provide fibre-to-the-premise services in Hull and has also expanded to other parts of Yorkshire and to the neighbouring county of Lincolnshire.

Macquarie’s investment in KCOM came at a time of feverish investment by other infrastructure investors in “altnets” – alternative fibre network providers that emerged to challenge the UK’s formerly state-owned telecom company BT and its peer Virgin Media in the rollout of FTTP infrastructure in the UK.

There are now more than 100 altnets operating in various parts of the UK and amid a backdrop of increased nervousness among investors over issues such as rising build costs and competition, the pace of investment has dropped off and widespread consolidation is expected to take place.

In contrast to the new altnets which are overwhelmingly loss-making, KCOM is profitable, benefiting from its position as the incumbent provider of voice and broadband services. In its last financial results for the year ended 31 March 2023, it reported EBITDA of GBP 38.1m, down from GBP 39.2m the previous year due to “non-recurring restructuring costs” on revenue down to GBP 101.2m from GBP 100.7m.

The decline came despite KCOM growing the total number of premises passed by its FTTP network to 297,000 from 277,000.

KCOM has faced increasing competition from Hull-based altnet MS3, which secured the backing of Asterion Industrial Partners in 2021 as it looks to expand in the north of England, and Connexin, which is also based in the city and secured a GBP 80m commitment from infrastructure investor Whitehelm Capital, now part of PATRIZIA, in 2020.

Antin-backed CityFibre, the UK’s biggest altnet, is also active in Hull.

MAM’s review of options for KCOM comes after Macquarie Capital-backed rural-focused fibre and wireless network operator Voneus last year merged with Tiger Infrastructure-backed SWS Broadband in a deal seen as auguring wider consolidation among UK altnets. Macquarie Capital specialises in providing debt and equity to businesses with EBITDA of around GBP 15m to GBP 150m and generally provides equity tickets of between GBP 50m and GBP 250m.

Earlier this year, Equitix’s Freedom Fibre agreed to buy the UK assets of InfraBridge’s VX Fiber to create a Midlands and northwest England-focused fibre network operator.

Meanwhile, similarly to KCOM, G.Network Communications’ owners Cube Infrastructure Managers and Universities Superannuation Scheme (USS) are exploring merger options for the London fibre network operator and have appointed Jefferies.