Against a challenging financial backdrop, regulation, adoption and consolidation will together shape the development of the UK’s fibre market
Panellists continued the debate around altnets’ adoption of a wholesale-only approach versus vertical integration
On 2 July 2024, the Internet Services Providers' Association (ISPA) held its annual ISP Summit. Steve Leighton (Chair, ISPA) offered a dose of reality for attendees, stating that while fibre coverage has reached nearly 75% of premises, take-up (30%) is not yet where industry expected or wants it to be. He stated that there is real uncertainty in the sector, with billions invested but returns unclear, and even the biggest investors now looking to “share the pain” of supporting altnets financially. This sentiment was reflected in the day’s first panel, with Natalie Colakides (TMT Analyst, S&P Market Intelligence) considering that it is currently difficult for altnets to raise new capital due to intense competition and the fact that many had missed certain KPIs. While data was presented showing that two altnets – CityFibre and Community Fibre – are EBITDA positive and that a handful are expected to get to that point soon, Olaf Swantee (Chairman, Community Fibre) considered that a similar illustration of cashflow would be “scary”. In this situation, the panel were in agreement about forthcoming consolidation, believing this would take the form of mergers rather than cash-based transactions, of which there wouldn’t be many until altnets can prove delivery against their business plans. On the much-debated question of the correct operating model for altnets, Charles Cameron (Partner, CNHH) stated that a wholesale-only approach is extremely attractive for investors, particularly at the national level where instances of overbuild are more likely. Oliver Bradley (Senior MD, Digital Infrastructure, Macquarie) reiterated his previous support for this type of model, referencing Spain’s “good wholesale culture”, where the top 10 retail providers all utilise different networks. However, Swantee considered that because of single sourcing this would be difficult to replicate in the UK, therefore making it tough for altnets to focus solely on the upstream market, adding that it would be risky for large retail providers to have all lines on a platform that may not be completely financially secure. He then seemingly took a swipe at CityFibre that raised some eyebrows and chuckles around the room, calling out the “ridiculous” wholesale contracts that have been offered by “one or two… well, one” altnet in order to bring on downstream providers (in this case, Vodafone).
B2B providers sought the Government’s helping in tackling rollout barriers, while predicting potential unintended consequences of regulation
Fredrik van Randwyck (Policy Advisor, Broadband Strategy and Regulation, DSIT) opened a roundtable on the future of business connectivity, recognising that this market had not been the focus of the Government for the best part of a decade but that it is now receiving greater attention in light of the growth agenda. Having built up a picture of the B2B landscape, van Randwyck stated that it appears that business needs are largely being met, although there are rising demands relating to symmetric connectivity, resilience and cybersecurity. Gemma Whiteley (Head of Government and Regulatory Affairs, UK and Ireland, Verizon Business) agreed that security and resilience are high on the agenda for large enterprises but stated that some still seem to have healthy appetites for risk despite the operator’s best efforts to advise otherwise. Major issues for many attendees – including Whiteley and representatives from CityFibre, Glide and ITS – appeared to be customers’ limited understanding of their technological or service needs, or the solutions they buy, as well as instances of SMEs taking residential packages and then being surprised by not having the SLAs they want when things go wrong. Evie Ioannidi (Regulatory Manager, Vodafone UK) considered that challenges relating to a lack of understanding may be compounded by the introduction of One Touch Switch in the business market, foreseeing the possibility that a simplified switching process results in customers losing services they think come as standard. The primary request from Will Woodroofe (Head of Policy, Openreach) was for the Government to tackle persistent problems around permitting and wayleaves, especially on high streets in small market towns, which are preventing the deployment of high-quality connectivity to businesses in these and other locations.
Operators are broadly comfortable with the current regulatory framework, but want greater urgency to effect overdue planning reforms
During an afternoon panel focused on regulation, panellists expressed broad support for the framework put in place to promote competition in, and investment by, the telecoms sector. Alex Blowers (Director of Regulatory Affairs, CityFibre) stated that the fundamentals for the fixed market are there and that Ofcom could be seen as a thought leader, with other European countries picking up on what’s been implemented in the UK. Robert Burles (Director of Regulatory Policy, All Points Fibre) felt that the story actually dated back further to the Government's Future Telecoms Infrastructure Review (FTIR) in 2018 and Statement of Strategic Priorities (SSP) the following year, adding that former Prime Minister Boris Johnson had got the Whitehall machine behind the push for fibre. While speakers largely welcomed the regulatory certainty offered by Ofcom’s recent Telecoms Access Review (TAR) consultation, Blowers thought Ofcom’s proposal to decouple geographic market boundaries for broadband and leased lines was “puzzling”, and that it was premature to assume competition won’t materialise in Area 3. Burles was concerned by Ofcom’s proposal to allow geographic pricing by Openreach in Area 3 and in particular that the regulator’s justification for this has been set out in a single sentence. Laura Holdgate (Head of Regulatory Affairs, Vorboss) also considered it curious that Ofcom hadn’t reassessed how market shares and competition are developing in the Central London Area (CLA) for leased lines. On their asks of the Government, both Paul Morris (Head of Government Affairs, Vodafone UK) and Blowers raised the need to boost digital skills and to reconsider net neutrality regulation. On the latter, Morris argued that the current rules are out of date, while Blowers was surprised that they are something the Government hasn’t looked at post-Brexit as they are “a deadweight regulation on industry” that Ofcom is still required to apply. With industry currently “at the foothills” of that debate, Morris stated that he wanted to see more “oomph” from the Government around planning reforms and operators’ use of public sector buildings – something on which support had been promised in the past but ultimately not delivered.
Though there was consensus on the benefits of future consolidation, there was also heated debate on the long-term survival prospects of some altnets
The event’s final panel reflected on the outlook for the UK’s fibre market, with panellists raising consolidation, adoption and regulation as three issues that will shape future developments. For Mark Shurmer (MD, Regulatory Affairs, Openreach), consolidation is part of the normal functioning of markets, which leads to stronger and more efficient players that in turn bolsters competition and yields positive outcomes for end users. Jeremy Chelot (CEO, Brsk/Netomnia/YouFibre) agreed, stating that combinations should happen sooner rather than later for those outcomes to materialise. Simon Holden (COO, CityFibre) also considered that consolidation among altnets would be “a good thing on balance”, principally to give providers the scale necessary to compete with the incumbent. However, Karen Egan (Head of Telecoms, Enders Analysis) felt that network penetration should be a greater concern for altnets, stating that current adoption rates and ARPUs are too low for many to make money and to survive as viable businesses. This assessment sparked a strong response from Chelot, who stated that poor penetration among altnets is not a problem and a “complete myth”, and that the argument that altnet ARPU is too low is wrong (unless perhaps it falls below £20 per month). On the matter of regulation, Chelot mirrored earlier comments from Swantee on the “fantastic” and “transformational” PIA remedy, which Shurmer stated means that a third of Openreach’s ducts and poles are now in use by third parties. Chelot thanked Openreach for PIA, adding playfully that it helps him take customers from his larger rival. In contrast, Holden considered the need for an overhaul of the regime to address the current monopoly of duct and pole assets, suggesting that Ofcom carve out a standalone PIA company from BT Group “just for fun”. According to Matt Warman (Former Minister for Digital, UK Government), there is lots of pressure on Ofcom to walk an almost impossible tightrope to regulate for the market in front of it and the one that might emerge. Looking ahead, he considered that the Government and Ofcom need to come together to support operators in light of their value to the country, in particular regarding the conversion of coverage into connections. While Shurmer considered that industry had achieved a great deal collectively with the deployment of ultrafast and reliable connectivity, he sounded a note of caution that the job is not done, underlining that “the hard yards are yet to come”.
