Altnets and private investors shape the European fiber market but face new challenges

Omdia view

Summary

Fiber is a priority for European broadband operators, and the market is becoming highly complex as new stakeholders, in particular private investors, are impacting the deployment. Network X, held in Amsterdam in October 2022, has been a platform for alternative operators (Altnets) to share their views on the dynamics of and challenges in the market.

The European fiber market has become complex, and private investors are empowering Altnets

Altnets have been driving FTTH deployment across Europe for many years, though many incumbents have ramped up their investments only in recent years. The European landscape is characterized by a high number of small fiber players and a few Altnets that have established themselves as sizeable market players, such as Deutsche Glasfaser in Germany and CityFibre in the UK. Together, these are challenging the status quo in European fiber markets.

In countries such as Germany, Austria, Poland, the Czech Republic, and Slovakia, more than half of all fiber customers subscribe to the services of small fiber operators (see Figure 1).

Source: Omdia World Information Series

Altnets are not only acting as retail ISPs using the existing fiber infrastructure but there are many that build their own infrastructure under a wholesale-only model, while others offer both retail and wholesale services. Many Altnets have used debt or equity financing to fund their fiber deployment as it requires significant upfront investments. Fiber has become a thriving market for private investment companies, and many of these hold majority ownership in European Altnets (see Table 1 for examples). Fiber is perceived as a mature market that offers an attractive risk-return profile as investment factors such as fiber penetration, cost to build, and regulation are favorable in many European countries. An increasing number of investment companies are seeking socially impactful infrastructure investments, which help to play a part in bridging the digital divide in society.

Table 1: Examples of privately-owned Altnets

Source: Omdia

The number of small fiber operators continues to grow, which has caused markets to become highly fragmented. Altnets from the UK and Poland present at Network X agreed that market consolidation is on the horizon, particularly as the macroeconomic crisis puts pressure on costs and has heightened investment uncertainties. Market consolidation will take different forms across Europe, but it is certain that stakeholders will look to secure long-term growth. Larger broadband operators have become interested in the growing customer base of Altnets, and private investment companies will look to integrate the assets of fiber operators and adjacent services to build a stronger player with increased value.

The macroeconomic crisis brings new challenges

The macroeconomic crisis and rising inflation put pressure on costs, particularly due to soaring commodity and energy prices. Small fiber operators are in a difficult position to absorb these costs, and there is a risk that deployment will slow down or be less extensive. This is particularly true for those Altnets that focus on underserved or unserved areas, as these are typically hard-to-reach and among the more expensive areas to build fiber.

High-speed connectivity is a priority for European governments, regulators, and the EU, but the macroeconomic crisis and related political turbulences have heightened uncertainties and slowed down decision-making processes. This poses a particular threat to those Altnets that rely on public funding. Polish Altnets, for example, are waiting for the European Recovery Fund, but payouts remain frozen until Poland reverts judiciary changes which are perceived to have undercut democracy in the country. The UK also saw political turmoil in 2022, and while gigabit rollout is a priority for the government, UK Altnets are concerned that political uncertainties are distracting from gigabit goals and slowing down investments in the sector.

The momentum for FTTH growth is strong across European countries, but it will take collaboration across the whole ecosystem to drive take-up rates. The growing availability of fiber networks needs to be met by consumer demand, which is still low in many countries. This is impacted by a lack of consumer education on the advantages of fiber or a preference for mobile solutions. Operators, regulators, and governments will need to work together to stimulate demand in order to drive digitalization and generate returns on investments.

Appendix

Further reading

FTTH Conference 2022 Wrapped: A spotlight on FTTH deployment in Germany, Italy, and the UK (June 2022)

Author

Julia Schindler, Senior Analyst, Europe Service Provider Markets

[email protected]