The UK fibre market is hotter than ever, fuelled by a combination of high consumer demand and investment enthusiasm, the latter being buoyed by low debt rates and growing interest for the long term in infrastructure assets. New regulations announced by Ofcom in March regarding the ramp-up of the roll-out for full fibre have also presented a more attractive business case for long-term investment, alongside protection of affordable options for consumers.
The pandemic has further accelerated market dynamics, with reliable connectivity increasingly essential for the large-scale adoption of hybrid working by businesses, and dozens of suppliers have now either announced or commenced build plans to expand fibre-to-the-premises/home (FTTP/H) coverage in cities and rural locations.
The race is on to fibre-ise a finite market
However, a helicopter view of the flurry of coverage announcements from BT/Openreach, Virgin Media O2, and many altnets (independent operators) quickly adds up to a picture of around three times the total number of connectable premises.
A number of challenges now stand between the players and reaching their targets, not least the fact that others will get to their identified premises first.
- Some overbuild is inevitable, but business plans will
be hit by coming second:
There is significant geographical overlap in the plans that have been announced, with at least 14 major UK cities being targeted by three or more of the largest players. For example, the recent aggressive expansion plans of BT and Virgin will dampen altnet expectations of finishing first. This will affect the commercial rate of return to counter the significant up-front investment required for build costs.
- Build may dominate the headlines, but connecting
customers is critical:
The network build-out and race to come first is only half the battle. The real challenge will be in monetising a new market offering, particularly when some altnets are operating on a wholesale-only basis and others are unable to provide a similarly compelling proposition to those that offer TV services in their retail bundles.
- Openreach's pricing is piling on more
Openreach's new "Equinox" wholesale offer to the industry, which came into effect on 1 October, offers ISPs a significant price cut on their FTTP products as well as a decade of pricing certainty. The initial proposal was decried by altnets, who argued that market competition would be impacted, as ISPs' likelihood of choosing other wholesale operators would be drastically reduced.
The right ingredients for a full-fibre diet
Altnets have been backed heavily by investors, who are displaying a strong appetite to play in one of the biggest telecommunications evolutions to date. But backing the right horse in a race of 50+ runners will require careful interrogation of altnets' roll-out plans, business models and execution capabilities and their proposed rigour in executing on the most efficient network building model possible.
- Meticulous mapping:
With a finite addressable market already oversubscribed on paper by the proposed coverage announcements, it will be critical to quickly identify attractive socioeconomic areas and reach them first in order to build a strong case for customer capture and a point of infrastructure differentiation. For example, securing wayleave agreements to multi-dwelling buildings such as blocks of flats could provide a strong degree of protection from the competition, as building owners may be reluctant to duplicate any disruption to their properties. Whatever the target premises may be, the speed of being able to move to implementation will rely heavily upon ensuring all local council relationships and third-party contractors are in place and ready to go.
- Strategic partnerships:
In such a congested marketplace, relationship building will be vital and securing pre-commitments from retail partners / re-sellers represent the ideal scenario to reduce investment risk. However, the big two players find themselves at a specific advantage here as they also have their retail arms, so others will need to form commercial relationships fast or risk never recouping their investment. Altnets can improve their chances of this by making not just their commercial terms as attractive as possible, but also focusing on marking processes and the ease of business with them as simple and seamless as possible.
- Efficiency through innovation:
Increased competition and the race to deploy will challenge business cases, but altnets also must ensure that they keep their eye on the ball in terms of tight management of capital deployment and the cost to deploy per household, which will be a key component in realising return on investment.
Global developments in technology and processes are constantly improving and can contribute to reducing the cost reach to individual premises. For example, the latest micro- and nano-trenching technologies can reduce deployment costs and time significantly, also limiting construction faults. Standardising design guidelines, optimising overall build-out and maintenance strategies, and exploring the use cases for increased automation during builds are all other value creation opportunities to be harnessed.
Other utilities may be under the microscope right now, with security of supply and soaring wholesale prices putting many energy suppliers on shaky ground. Here too, challengers to the major market players will inevitably fall by the wayside after the digging is done. Should market consolidation activity emerge later down the line, it will be the altnets who can build smart and fill fast that will successfully navigate any future fibre fallout.
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