The Challenges and Opportunities of a Once-in-a-Generation UK Gigabit Broadband Upgrade

Authors

There will be as much change over the next five years as the previous twenty years

Globally, and in all major economies, fibre-to-the-premise (FTTP) gigabit broadband networks are being built at pace, replacing legacy broadband and phone networks. FTTP will grow to 75% of fixed broadband globally by 2030. The UK is arguably playing catch-up with many other countries in the FTTP build stakes, but now has one of the fastest FTTP build rates of any country. High levels of investment and regulatory freedoms have launched the UK into a highly disaggregated market with intensive competition and over 100 alternative network providers (AltNets) building FTTP today, competing with incumbents such as BT Group (Openreach) and Virgin Media O2.
 
FTTP broadband offers over 20 times the speed of legacy broadband networks, enabling a broad range of applications that require the higher speeds (e.g., streaming, gaming, virtual reality, remote surgery, metaverse) and, importantly, supports running many applications over many devices simultaneously. Once built, FTTP networks are also cheaper to maintain and operate for network providers and will be an infrastructure that will endure the next 25-50 years – a generational change of technology for everyone.
 
Customers have to be migrated from legacy broadband to FTTP. This requires an engineer visit to the home to drill a hole in the wall to get the fibre into the house and installation of two new pieces of equipment in the home (an Optical Network Terminal (ONT) screwed to the wall and a broadband router to provide Wi-Fi in the home). The hope from network operators is that customers, after having gone through this process once, are unlikely to want to repeat it too quickly to change FTTP providers. 
 
There are some important data points that paint an interesting picture of the UK broadband market at this critical time:

• Legacy broadband, made up of FTTC and ADSL broadband technologies (mainly form Openreach), covers 96% of UK homes with over 85% take-up - over 80% of UK homes use broadband
• BT is switching off its legacy networks in 2025 - everyone will need to migrate off legacy broadband products
• The top five consumer broadband brands have over 85% market share of legacy broadband (BT/EE/Plusnet; Virgin Media O2, Sky, TalkTalk and Vodafone) – this marks a challenge for the new entrants
• Total UK FTTP investment is likely to exceed £30bn over a 10-year period, with a further £5bn in state aid from the UK Government's ‘Project Gigabit’ - many investors are looking for a return
• Openreach plans to build its FTTP network to pass 25 million homes by the end of 2026; Virgin Media O2 plans to build FTTP to pass 23 million homes by the end of 2028; AltNet forecasts building FTTP to pass another 20 million+ premises - with 30 million premises in the UK there is a significant overbuild risk that could undermine some investments
• Current UK FTTP take-up is in the order of 25% compared to closer to 50% in other areas of Europe – there is a lot of headroom for the UK to accelerate take-up
  

Incumbent Telcos

The move to FTTP is a double-edged sword for the incumbent broadband network providers such as BT Group and Virgin Media O2. They face the unenviable task of migrating all their customers to a new set of FTTP products, in parallel with building out the new FTTP network and upgrading their portfolios of voice and communication services to be fully FTTP-compatible. This transition requires exceptionally careful optimisation of churn and margin loss during migration of pushing customers too fast vs. the risk of losing market share to new network providers if they go too slowly.

However, the incumbents can look positively on their scale, brand strength, and channel reach advantages. Incumbents also have the not insignificant prize of being able to drive significant cost and complexity out of their businesses from switching off legacy networks and focus on running FTTP networks alone. A particular risk for incumbents is their enterprise and public sector customers, who often face a highly complex migration impacting their networks, IT systems, applications, and associated equipment. A note of caution is also warranted from other, comparable countries; in Germany, legacy network closure dates had to be extended to allow customers, especially those in the enterprise and public sector, more time to migrate successfully, for which someone has to foot the bill. 

Challengers: Alternative Network Providers (AltNets)

Responding to the opportunity created by the enabling regulation and supressed market demand, AltNets attracted over £10bn in private investment over the last five years, focused on building regional FTTP networks to lay a claim to geographic areas. The AltNets are now moving to drive FTTP customer take-up to monetise their investments and deter overbuild from competing network providers.
 
AltNets face some fundamental challenges to break into a market dominated by five established brands, which is pointing any of them to increasingly adopt wholesale models to maximise their channels to market. There is a likelihood that enabling ‘Open Access’ strategies, where AltNets can connect once into a community to sell to multiple retail brands and vice versa, i.e., retail brands can connect once into a community to buy form multiple AltNets, will be necessary to enable AltNets to achieve their take-up ambitions.
 
There is a lot of industry talk about a likely consolidation in areas such as the fragmented market, seeking synergies and economies of scale, and there are some early signs of acquisitions happening. The battle ground may well end up being the value of AltNets networks; coverage is interesting, but the number of paying customers is most important. 

What Cambridge MC can do to help

At Cambridge MC we are blessed with consultants with tens of years of experience, gained from senior roles in Tier 1 Telcos, AltNets and Enterprises, and all with a global perspective. With a wealth of expertise and experience, we are best placed to advise on strategies from planning to roll-out, and from every commercial and technological angle.

With a reputation for excellence and knowhow in the telecommunications industry, Cambridge MC will continue to track this generational change in operational and commercial models as they emerge globally. We pride ourselves on being ahead of the curve, and our consultants sit on many panels and boards that advise on current activities and future trends, able to advise your organisation on adoption strategies - for more information contact us using the form below.