KCom confirms plans to upgrade network

In a presentation to City analysts, the Hull-based group described plans to upgrade its copper network with fibre, which would significantly increase internet speeds in parts of Hull and East Yorkshire.

KCom targets domestic and business telecoms in East Yorkshire via its KC arm, and big businesses and organisations nationally through its Kcom division.

The company believes the growing popularity of data-hungry applications and devices such as tablet PCs, smart phones and online TV will mean Hull’s broadband capacity needs upgrading.

Adding ‘hybrid’ fibre optics to the city’s copper network could increase internet speeds up to 50 megabits per second (Mb). That would be a significant step up from the current 2-6Mb speeds most of Hull’s residents and businesses currently receive from KC. It would also give KC scope to increase its broadband penetration in Hull from 55 per cent, versus a national average of 68 per cent.

“Recent investments in our core network position us well to meet future growth in internet demands,” said the company.

“The next stage in our plan to upgrade our network is to provide the capability to deliver super-fast broadband, using fibre technologies.”

Currently, almost all of KC’s customers get a minimum of 2Mb, with more than 60 per cent receiving at least 6Mb, and going up to 24Mb in some cases.

KCom declined to say how much the fibre roll-out will cost, but said it plans to pay for the upgrade through its existing cash flow.

“The board confirms that trading remains in line with market expectations, with continued strong cash generation,” it said.

KCom’s executive chairman Bill Halbert revealed the fibre upgrade in an interview with the Yorkshire Post in February.

He said at the time: “Probably by the time you get to 2013/14/15 we might in some parts of the city for some customers begin to see demands that go beyond the 2-6Mb.

“We are looking at fibre investment. We would take fibre to certain premises and probably put a fibre ring in the city.”

A likely blueprint will be “fibre to the street cabinet” – a ‘hybrid’ upgrade to the city’s copper network, giving speeds of up to 50Mb.

KCom said the first phase will be rolled out over the next 18 months to cover around 15,000 homes.

“Further investment beyond this initial deployment is dependent on a favourable commercial outcome,” it added.

KC, formerly Kingston Communications, has a virtual monopoly in Hull and the immediate vicinity, with a market share of around 90 per cent.

However, across the whole of East Yorkshire its market share falls to 60 per cent. It believes the market for fixed-line telecoms in East Yorkshire is worth around £150m.

KC is also expanding into nearby parts of East Yorkshire by unbundling exchanges owned by BT. By targeting towns such as Withernsea and Hornsea, it believes there is a potential market of 30,000 to 40,000 extra customers in the commuter belt surrounding Hull.

However, KC is not thought to be planning expansion as far afield as Doncaster, York or Leeds, where competition is considered much stronger.

KCom added it has won further contracts in recent months, delivering “incremental growth” in its multi-year contracted order book.

Analysts highlighted the company’s strong cash generation – underlined by KCom’s determination to fund the KC expansion through its current cashflow.

Liberum Capital analyst Mark James said: “Importantly, the company has confirmed that fibre roll-out plans (to selected areas within KC’s footprint) are included within current FCF (free cashflow) and capex (capital expenditure) guidance.”

An independent movement

KCom is a rarity in the telecoms world. It began life on November 28, 1904, when Hull Corporation opened its first exchange, in Wincolmlee in Hull. It was soon the country’s only remaining municipally-owned telecoms corporation.

Known for its distinctive cream-coloured phone boxes, the company has held a virtual monopoly over fixed-line telecoms in the city ever since.

In 1987 the Hull City Telephone Department became Kingston Communications.

It floated on the stock market in 1999, with the city council retaining a 44.9 per cent stake.

The council sold the rest of its stake in mid-2007 and the firm changed its name to KCom.

In recent years under executive chairman Bill Halbert, the group has simplified to focus on two divisions.

KC serves the domestic and business community of Hull and East Yorkshire, and Kcom serves big businesses and organisations nationally.