Ode to the AltNets

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Sarah Mills, Chief Revenue Officer at Neos Networks, looks at what it takes to succeed as a challenger fibre company in the UK.

In recent months, some telecoms incumbents have questioned the viability of the Alternative Network Provider (AltNet) business model. Their concern? That the delivery of extensive fibre, or overbuilding, across towns and cities could see just a few players cross the finish line in the race to upgrade the UK to full fibre connectivity. But what has led to this assumption? And is this incumbent doomsaying warranted?

Over the last decade, we’ve seen dozens of AltNets pop up, encouraged by the opportunity to put the UK on an equal fibre footing with the rest of Europe, by replacing old copper infrastructure with fibre optic technology. Despite many AltNets not having skin in the game from the get-go, they were sophisticated in their approach, identifying locations, and communities of interest that were hungry for superfast services.

This approach attracted significant investment from private equity, banks and investors to support builds. And it’s unsurprising, considering the business agility they boasted in accelerating the rollout of fibre to a nation in need of digital infrastructure. And yet, just a few short years from their inception, the competitive relationship between incumbents and AltNets is on rocky ground with accusations of ‘choking’ competition and concern that consolidation could spark market volatility.

Build it and maybe they won’t come

The challenge for AltNets is that many of their business models were based upon the assumption that if an AltNet was there, an incumbent would not overbuild them. This hasn’t been the case – and some incumbents have accelerated their fibre builds more quickly than many challengers anticipated. And despite the increasing availability of full fibre connections nationwide, both groups face a similar conundrum: low market penetration.

Some of the biggest players still sit below the 30% penetration threshold to see a return on their full fibre investments in the next 12-14 years. If the rest of Europe is anything to go by, markets where full fibre services mature may start to see drops in pricing for Fibre-to-the-Premise (FTTP) connectivity. The sustainability of competing on price could create problems for AltNets, meaning it would be unrealistic to think that such vast numbers of AltNets will last.

A combination of challenges means consolidation is fairly inevitable. Both successful AltNets and some of the bigger players will opt to absorb other existing AltNets that have completed stage one investment but lacked the best of breed network connections to succeed. Maintaining independence for AltNets will mean unlocking the scale and value economics needed to survive.

AltNets still have some tricks up their sleeve

The reality is, AltNet competition is having its desired effect and incumbents fear their challengers more than they may be letting on. AltNets’ sophisticated approaches to identifying the viability of their services by finding niche markets and communities while delivering services profitably has helped. That success has and is continuing to whet investor appetite. But as the fibre splurge dies down, neither the AltNets nor the incumbents will be entirely immune. AltNets will need to have an established line of business as incumbents will be more used to this scenario and will have their marketing power, coverage and strength of brand to fall back on.

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. A new report found that AltNets are often harvesting the top speeds in key areas of the UK, a competitive advantage that will attract envious stares from many. Those high-capacity, high-quality network services are critical to data hungry customers, particularly businesses looking to pull resources down from the cloud or transport high volumes of data. It is also vital for high performance virtual reality and other video applications that suffer from buffering if the network can’t match the requirement.

Catering to the needs of more densely populated business postcodes is a key opportunity for AltNets to achieve business resilience as competition becomes fiercer. They can underpin the creation of tech hubs outside of London, by educating businesses on how connectivity can act as a springboard to support their business function, while also marketing the futureproof nature of gigabit capable services beyond the typical ‘superfast’ to create strong footholds in niche markets.

The UK Government must be balanced

It’s also increasingly apparent that the expansion of FTTP services will play a critical role in the Government’s levelling up agenda. During the pandemic, connectivity was key in keeping workers and communities connected to ensure business continuity, enabling years’ worth of digital transformation in a matter of months. AltNets have demonstrated their value in achieving this goal, but it’s not such a level playing field where government funding, access rights and wayleaves are concerned.

While 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. It seems, that when it comes to ‘levelling-up’, there’s an argument that it should apply to the challenger companies in the telecoms infrastructure supplier community as well.

As the fibre race heats up, there’s little doubt we will see big shifts in the market for fibre connectivity suppliers. The ultimate success for AltNets will depend on the economics of how they reach customers, but also how they serve them, continuing to compete with market-leading speeds and high capacity, end-to-end connectivity for businesses and consumers. Understanding customer needs and continuing to be sophisticated in their approach of identifying businesses and postcodes that put a premium on connectivity will be imperative. But so too will partnering with national connectivity aggregators that can extend the AltNets networks and provide higher capacities into hard-to-reach locations to continue creating long term revenues and achieving business resilience.

Sarah is responsible for Neos Networks’ strategy across the sales division, ensuring that customers and partners are well supported and that Neos Networks is meeting its ambitious growth targets. Sarah has over 20 years of experience, having worked at O2 for eight years, followed by seven years with Telefonica Global Solutions, leading business development and strategy across Latin America, China and Europe.