Losing nearly £1 billion in market value, BT received a setback as Sky has announced that it will enter CityFibre’s network to offer broadband. This is another axe applied to BT’s Openreach business, which has already resulted in a huge share price drop of BT.

Tuesday, weirdly, it offered up an almost £1 billion hit to the value of BT. The reason? Sky signaled a massive change to how it will deliver its broadband. Rather than solely relying on BT’s Openreach to connect its customers to the internet, Sky will now also utilise CityFibre’s network. At close, BT’s stock was down over 6%.

What’s the big deal? So far, Sky has been taking its broadband connections from Openreach, part of BT, which owns much of the UK’s internet infrastructure. But under Sky’s new scheme to hook up with CityFibre, BT’s Openreach now faces new competition. In turn, that could mean lower internet prices that companies like Sky might negotiate. It may be difficult for BT to charge as much for its services if that happens.

Such a move by Sky is causing a great deal of worry for BT and its investors. The fall in the share price on Tuesday, in fact, wiped out most of the gains the company had made since the beginning of the week. Only last week, the shares of BT had surged forward after Bharti Enterprises, an Indian conglomerate, had purchased a 24.5% stake in BT. Currently, the stock has fallen from 145p to 136p, reducing BT’s total market value to £13.5 billion.

Investors have fretted about these encroaching rivals for some while. Sky’s move to take CityFibre’s network is a key worry for BT investors, analysts at Citi, one of the biggest investment banks, said. They had long feared that new competitors could take a bite out of BT’s business.

BT’s Openreach is charged with delivering full-fibre broadband connections to people’s homes, and by 31 March 2024 it had delivered to 4.7 million customers. Altogether there are 14 million premises within Openreach’s footprint that are able to order the high-speed links. BT are aiming to build their network up to reach another 6 million premises. But there are 28 million households in the UK so there is clearly still so far to go.

It hopes that its size will be an advantage in driving down costs. Its biggest competitor is Virgin Media O2, which wants to reach 5 million homes with its own fibre network by 2026. BT and Virgin Media O2 are the two biggest providers of wholesale internet connections which other companies buy and then sell on to consumers.

But BT and Virgin Media O2 are now fighting back against increasing competition from a plethora of smaller, alternative networks, known as “altnets,” that are scrambling to connect more homes to full-fiber broadband to grab a slice of the market. Such an altnet is CityFibre. It already covers 3.8 million households, with plans to reach 8 million in the next few years.

Other market competition includes Community Fibre, with 1.5 million premises, and Nexfibre’s XGS-PON network, reaching 1.1 million premises. Gigaclear is another, with 500,000 premises, a headcount reported by the industry website Think Broadband.

Greg Mesch, chief executive of CityFibre, said: “This marks a big endorsement of our business” and said it “cements CityFibre’s status as the UK’s third major digital infrastructure platform.”.

This is the latest development in how dynamic the broadband market can get. With new entrants coming into the fray and new technologies potentially making their mark, companies such as BT need to keep on their toes. The move by Sky to utilize CityFibre’s network is a reminder that in the world of Internet Service Provision, the competition can be fierce and may have a big impact in the marketplace.

With broadband changing so quickly, it is only natural that companies such as BT, amongst others in this sector, will also have to re-align themselves to compete and maintain an edge over new rivals in the making. Whether they will manage to do it or new rivals will take the helm remains to be seen. Currently, BT is facing a daunting challenge emerging with a whole new competitive set and changing market dynamics.