Company signs a £5m deal with CityFibre to lay out fibre optic networks connecting 1m homes as it aims at 5G services

Vodafone has struck a £500m deal to bring next-generation gigabit speed broadband to a dozen UK cities, enabling consumers to download 4k quality movies in minutes rather than hours and hospitals to send CT Scan images in seconds.

Vodafone has struck a deal with CityFibre, the publicly-listed company, to build fibre optic lines to 1m homes by 2021 with an option to extend to 5 million homes by 2025, covering 20% of the UK broadband market.

While few consumers and businesses need gigabit speeds now, up to 1000Mb, it is likely to become the norm in coming years. It would be 50 times faster than standard UK broadband and three times quicker than the fastest option currently available from BT.

Fibre networks will be needed to provide the back-end data shifting muscle for next generation 5G mobile networks and the internet of things – from fully automated homes, driverless cars and “smart” manufacturing.

The cities where full fibre networks will be rolled out are yet to be named but are likely to be locations such as Peterborough, Milton Keynes, Leeds and Edinburgh where CityFibre has already been focusing . Construction is due to start next year with the first customers expected to be connected before the end of 2018.

The government has referred to full fibre networks as the “gold standard” internet infrastructure.

Ofcom points out that the boom in streaming and downloading video, fuelled by services such as Netflix, Amazon and YouTube, has seen home broadband data usage grow at a rate of 36% per year.

“Organisations such as schools, hospitals and GP surgeries will get these speeds for the first time,” said Nick Jeffrey, Vodafone UK chief executive. “The UK has fallen far behind the rest of the world, trapped by the limited choice available on [existing] networks. Only with gigabit fibre will the UK be able to deliver 5G services.”

Jeffrey cited examples of the benefits of high-speed internet: a two gigabyte CT scan sent between hospitals could be done in 40 seconds, compared with the average 14 minutes now. A 5 gigabyte virtual reality game will take 1.7 minutes to download, compared to 34 minutes now. And a 4K movie will download in 33 minutes, instead of 11 hours it takes now.

The move will see Vodafone take on BT’s Openreach, which runs the UK’s broadband infrastructure that rivals such as Sky and TalkTalk, and Virgin Media, which runs its own network.

Vodafone will have exclusive rights to market the new networks during construction phase, guaranteeing to take on 20% of customers, with CityFibre eventually looking to allow rivals to sell packages to consumers using its network.

“With this commitment from Vodafone we have a partner with whom we can transform the digital capabilities of millions of homes and businesses,” said Greg Mesch, chief executive of CityFibre. “This is a major step forward in delivering gigabit Britain.”

Shares in CityFibre, which in July raised £200m to fund building fibre networks, soared more than 25% following the announcement of the deal.

If Vodafone’s deal with CityFibre is extended to cover 5m households it will achieve 50% of the government’s target of full fibre to 10m homes and businesses. The partners said they will know in a “year or two” which cities beyond the first 12 will be targeted next.

Openreach has been in talks with operators including Vodafone and Sky to deliver on the government’s call for more full fibre. Openreach has said it will cost up to £600m and costs will be footed by price rises for consumers.