Omdia view
Summary
Driving improved FTTP subscriber take-up is key for all UK players, particularly for those altnets that have struggled so far. The picture, however, is not universally weak and altnets can examine various ways to improve uptake. Consolidation in the UK FTTP market is inevitable, but this could take various forms. The Connected Britain 2023 event demonstrated the importance of electronically documenting the built fiber network, and testing and monitoring it.
Driving FTTP subscriber take-up growth is a key objective for all fiber operators
One point of discussion that featured heavily in all conversations at the event was the question of FTTP subscriber take-up. Many altnets have focused on building up their homes’ passed coverage and neglected attracting subscribers. Clearly, this needs to change in order to develop a viable business. While it is true that some altnets have seen low take-up rates and face a highly uncertain future, our view is that this should not be taken to mean there is necessarily low overall demand for FTTP in the UK. Openreach registered an FTTP subscriber take-up rate of a very respectable 32% at the end of 1H23 compared to just 26% one year earlier (see Figure 1). This was particularly impressive given that the operator’s homes passed base increased by over 3 million, or 38%, during the same timeframe. Some altnets have also achieved strong uptake, with Hyperoptic mentioned as one example. Community Fibre has also noted it still has growing take-up rates in the high 30%s for its earliest cohorts. In other words, the near-nationwide FTTC-VDSL coverage has not prevented all players from achieving solid FTTP take-up rates and altnets should take heart from this.
Figure 1: Openreach ‒ FTTP premises passed, FTTP subscribers, and FTTP subscriber take-up rate, 2Q19‒2Q23
Source: Omdia
Nevertheless, there is clearly much work to be done for some altnets to achieve healthy take-up rates and develop a viable business, and the event featured some discussion about the means by which this could be achieved. One of the reasons behind Openreach’s strong subscriber take-up growth has been its ability to attract large wholesale customers with its Equinox offers. The non-BT retail share of Openreach FTTP connections has grown from around 21% at end-2Q21 to around 44% at end-2Q23. Altnets could become part of wholesale aggregation platforms, which would then make it easier for large nationwide ISPs to provide retail access on altnet networks. One altnet, Freedom Fibre, demonstrated this during the event, as it highlighted its ANANET wholesale platform. The challenge with this approach is the established relationships that large nationwide ISPs already have with Openreach.
Another area of discussion was advertising rules, which have meant that FTTC-VDSL and cable networks have been advertised as fiber. Changing this would surely do no harm to FTTP take-up but is unlikely to be a panacea. Italy, for instance, uses a traffic light system where FTTP retail plans are marked as green, yet full fiber take-up remains modest (see Further reading).
Going beyond mere FTTP access will be increasingly important for altnets as Openreach continues to expand its coverage and high-speed connectivity becomes more ubiquitous. Altnets must therefore focus more on their retail offerings. At the event, Hull-based ISP, Connexin, highlighted its partnership with vendor Calix to offer its customers services such as parental controls and guest Wi-Fi access. Connexin also noted its engagement with the local community, which is key for smaller altnets. One example of this is the company’s marketing campaigns with local boxer and Olympic gold medal winner Luke Campbell, which can help build the company’s brand and market awareness.
Consolidation in the UK FTTP altnet segment can take many forms
A closely linked topic of discussion remains the consolidation of UK fiber players, which is highly likely. Much has been written on this area already, but accelerating subscriber take-up is certainly one way to avoid the sale of distressed assets. Wholesale aggregation platforms are also a means for altnets to become part of a bigger whole without any company sale.
There is also the possibility of sales of altnets to larger players that are already present in the UK FTTP market. In September 2023, nexfibre, a joint venture comprising Liberty Global, Telefónica, and InfraVia Capital Partners, agreed to acquire fiber altnet Upp. Cable operator VMO2, of which Liberty Global and Telefónica are shareholders, can then expand its retail offering into the Upp FTTP footprint. nexfibre has stated plans to cover 5 million premises with FTTP by 2026, a figure which could potentially be expanded to 7 million. Such acquisitions could be one way for nexfibre to meet these targets. Aside from nexfibre, other larger players could also be consolidators; for example, Community Fibre acquired the much smaller Box Broadband in August 2021. One challenge to this scenario is that larger altnets are focused on rapidly increasing their own coverage and acquiring smaller altnets could be a time-consuming process that does not actually result in adding a large number of homes passed.
There is also the possibility of mergers and acquisitions between larger fiber players. Earlier this year, reports discussed a potential transaction between nexfibre and wholesale-only FTTP player CityFibre. This would entail more overlap with VMO2’s cable network, but would potentially be an easier way for VMO2 to migrate cable customers to FTTP rather than upgrading its cable network to full fiber, something which VMO2 has also stated it has plans to do. Migrating the cable network to FTTP presents some challenges and, depending on the nature of the upgrade, could still incur considerable capex (see Further reading).
The role and future of cable is also crucial in determining the future of many FTTP altnets. In areas with cable coverage it will be challenging for altnets to achieve a viable business unless they can attract significant numbers of cable churners; for instance, customers dissatisfied with price, customer service, and/or network performance.
A different scenario is that smaller altnets join together through mergers and acquisitions and in this way benefit from increased scale. Some of the more successful UK altnets are those with the largest coverage and the scale benefits are real.
Documentation, testing, and monitoring of FTTP networks are all areas in which operators can benefit
Electronic documentation of the as-built fiber network was highlighted as of huge importance in a number of conversations at the event. Operators must document their network electronically, for instance, to see which ports are in use and so avoid preliminary truck rolls to see whether it will be possible to connect a customer at a certain location. Accurate documentation of the fiber network inventory will also be important in the case of market consolidation. Purchasers will need records to understand exactly what they are buying.
FTTP testing is also an area that was highlighted in our conversations at the event. Centralized optical time-domain reflectometers (OTDRs) are used by some UK players, such as Openreach, to test all fiber as it is deployed. This then ensures customers will not be disappointed when it is not possible to perform an installation because of issues that have not been detected earlier, such as crushed fiber. While some altnets use such solutions, others could benefit from their deployment. Operators can also leave centralized OTDRs in place to monitor the network and assist in locating faults more precisely in order to reduce mean time to repair (see Further reading).
The challenge for solutions that test and monitor the FTTP network is that many altnets might be unwilling to spend upfront on these offerings, since they have a short investment timeframe and may be looking to sell their assets within a few years. However, investors do need to bear in mind the very long-term asset life of fiber networks and invest accordingly. In addition, failed installations due to poor network documentation or faulty fiber lines are a real concern and altnets should be aware that some initial spending can help reduce problems and save costs further down the line.
Appendix
Further reading
FTTP Subscription Conversion in Europe: Assessing Current and Future Trends (July 2023)
Analyzing the Future of Cable Networks: DOCSIS 4.0 and FTTP Upgrades (March 2023)
Analyzing FTTP Opex and the Value of Centralized OTDRs (Coming soon in Omdia’s Broadband Access Intelligence Service.)
Author
Stephen Wilson, Senior Principal Analyst, Broadband Access Intelligence Service
