Has the fibre market reached boiling point?

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Simon Wilmott, Director of Wholesale Business Development at Neos Networks, takes the temperature of the UK fibre market.

Despite its inherent nature, the future of UK fibre is anything but ‘fixed’. UK incumbents and alternative network providers, or “AltNets”, have been in a fibre-laying frenzy to make gigabit-capable broadband available nationwide. Part of the government’s levelling up agenda, the widespread availability of digital infrastructure and services is imperative to stimulate business growth, create new job opportunities and improve public services like health and education. But the market is experiencing some turbulence. Exactly who will come out on top is one burning question. Competition is heating up, but all players are working towards a common goal—one that entails improving social and digital inclusion, and accelerating the adoption of connectivity that can establish the UK as a leader in technology innovation and a worthy home for business investment.

Trouble in paradise

With fibre set to be a key contributor to a bright economic future for the UK, there was always going to be a fight for dominance and recognition as the UK’s leading connectivity provider. AltNets seized an early opportunity, building their networks at pace with huge investment backing from Private Equity firms. And they are now on track to reach 11.5M homes – equal to half the properties in England and Wales – by the end of 2023. From their perspective, they were starting anew, building new infrastructure without the tethers of managing or overhauling existing legacy infrastructure.

The assumption was that they wouldn’t be overbuilt by incumbent players stripping out copper lines to make way for futureproof fibre optic technology. The disruption they have brought is healthy competition, and they have made great efforts to identify areas in need of connectivity improvements, taking focus away from densely populated urban areas.

But incumbents were never going to go down without a fight. The fibre rollout was always going to be an opportunity for them to build on their share of the market. It makes business sense for them to do so and is paramount to meeting with the UK’s target for full fibre access.

The latest move by Openreach to strengthen its position comes in its framework to lower the pricing of its wholesale lines, what it calls Equinox 2. It’s been met with claims that it is anti-competitive, predatory pricing that would stifle competition. But the lower prices could help ISPs to improve market penetration for full fibre connectivity.

Consolidation was inevitable

Based on its current data, Ofcom expects full fibre will reach more than 80% of UK homes in the next two years. A feat that could only have been achieved with healthy AltNet competition. And their success in the market continues to whet investor appetite. But consolidation in the market is inevitable. Yet, while it will not be economically viable for six or seven companies to compete for a share of the market in any one location, the game is far from over for AltNets. At the start of the year, four AltNets backed by Fern Trading consolidated into one Fibre-to-the-Premise (FTTP) firm. It represents what the chairman of Fern Trading’s fibre division calls “…the start of even bolder aspirations for (its) place in the UK fibre sector.”

Consolidation is a logical next chapter to the substantial changes that will cross the fibre market in the ensuing years. However, the combination of each player’s efforts makes for an even stronger challenger to the incumbents, without needing to be absorbed by the major providers. And there is opportunity for them to address demand from data-hungry customers in new business postcodes, multi-business units, or in underpinning the creation of tech hubs outside of the capital. Equally, there are rumors that VMO2 is priming itself for acquisition of wholesale fibre provider CityFibre. A move that would significantly strengthen its position. For AltNets that want to continue fighting the battle alone, maintaining independence will mean unlocking the scale and value economics needed to survive.

Lowering the hurdles and unlocking new opprotunity

Where AltNets have demonstrated their value in lighting up the UK, it’s not such a level playing field where government funding, access rights and wayleaves are concerned. Some suppliers are able to move at speed without the need to negotiate the permissions smaller players need to self-validate when aggregating connectivity. The resulting additional fees create more challenges for the AltNets and further slow the effectiveness of the Project Gigabit plan.

One way the government is looking to further enable future rollouts was outlined in its latest wireless infrastructure strategy. New flexi-permits are being tried by local authorities and telcos to allow telecoms companies to work in multiple streets under a single permit. This could be significant in accelerating the rollout of connectivity infrastructure. A great opportunity for AltNets and incumbents a like.

The crux for service providers through accelerated infrastructure builds will involve targeting and aggregating into the businesses and local communities where demand is highest. Some larger AltNets are also targeting an opportunity to add a new revenue stream and channel to market by entering the business connectivity space, offering higher capacity services across new regions that it has been faster to connect. Very recently Talk Talk announced that it would be using CityFibre’s network to serve its business customers through the AltNets business Ethernet infrastructure. A blow for incumbents, but a reminder that AltNets are involved in more than just a race to connect residential customers.

Marketing the futureproof nature of gigabit capable services beyond the typical ‘superfast’, that is so often pushed, will also be critical to create strong footholds for smaller players and AltNet consortiums in niche markets. Additionally, it won’t be economically viable to lay fibre everywhere. Wireless connectivity through 4G and 5G coverage will be relied upon to close the last mile – and is a key focus area for the UK’s government. But underpinning those networks is the high capacity backhaul that can only be delivered through fibre. Again, indicating that the future of UK fibre is about more than just fixed line broadband connectivity.

Demand will be driven by evidence of enablement

One of the big shifts telecoms companies need to push for is improving customer understanding of what is achievable through connectivity. It’s all well and good to promote speed and capacity improvements but this diminishes the human element of what is actually achievable. Connectivity provision is part of a much broader technology ecosystem. And moving away from technical capabilities to what it translates into in terms of business resiliency improvements and societal benefits is critical. It’s that understanding of how connectivity can be used as a springboard for business efficiency and consumer lifestyle changes that will increase take up of full fibre services.

Oxfordshire County Council is a great example of a local authority that has fully embraced the improvements connectivity can enable, making strides with its ambitions for a ‘smart county’. For example, its new network has been used to improve Wi Fi hotspots making it possible for citizens to work flexibly. The council also understands that the network is a key component in enabling future innovation such as drone corridors, connected autonomous vehicles, and other internet of things (IoT) services for residents and businesses.

For AltNets and incumbents to establish themselves their customers need to understand the value add. Those that achieve this won’t overcook themselves as the market continues to boil.

Simon is Director of Wholesale Business Development at Neos Networks. He is responsible for leading the sales teams across Neos’ wholesale division, working to ensure the business continues to deliver great services for its partners. Simon has over 25 years’ experience within the telecoms industry, working with the service provider market, developing value-add propositions and building out strategic partnerships.

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