It is a pivotal year for fibre: with large amounts of on-going build activity, altnets vying for space and investment, and a potential wave of regulatory change poised to go ahead – yet the opportunities remain huge. Some of this is not new, and the fibre sector has been anticipating reforms for some time. However, anticipating these challenges and finding ways to thrive alongside them is key.
The fibre sector is full of altnets that are used to tackling hurdles head on. This year, our most significant challenge will be in the rationalisation of the market as it pivots from a sector focussed on building networks, to one that amortises the networks it has built. In short, altnets need to focus on the long-term business models that will deliver the returns the investments require.
Becoming rational players
Building fibre networks is a hugely capital-intense business, with the sector seeing nearly £20bn of private equity and debt already committed to altnets, the result of which is nearly 45% of UK premises are now ‘within reach’ of fibre networks.
This private capital far outstrips the public funding that has been assigned so far, with the process for accessing public funds remaining opaque and slow. The Open Market Review process, which identifies commercial build plans to the government, and is supposed to prevent public subsidy funding overbuild, is a clear example of this as a cumbersome and subjective process.
Overbuild between altnets dramatically increases risk in network investments, and rational players tend to avoid it. In anywhere other than dense urban areas it inevitably puts pressure on the business case, reducing the security of tenure. It dramatically affects network adoption curves and thus the time it takes to amortise the network, an outcome that will be felt in longer-term valuations. Ultimately, where multiple networks overlay each other, there is only a finite amount of market to share.
The effects of overbuild will also impact consolidation. Networks with higher security of tenure over their assets will do well; delivering strong returns and paths to strong long-term financial returns. Those with higher overbuild levels in sub-urban environments may find it more challenging.
Agility is key: governments and regulators should embrace this.
As well as the need to remain agile in the face of a fast-changing market, the Government’s political agenda must align with the best outcome for the public. The current Whitehall rhetoric to ‘just get everything done in the next 18 months’ will inevitably lead to procurements falling to the largest organisations (Openreach specifically) for speed of contract award, based on supersized lots. That could do a lot of damage to altnets’ plans and almost certainly lead to longer delivery times for consumers, with more of the public getting left behind due to selective dropouts.
Well-designed lots offer more opportunities for altnets to build networks with strong security of tenure. Altnets like FullFibre create a competitive marketplace for consumers, build quickly, and survive by providing excellent quality of service.
Establishing long-term value
Looking to the future, altnets must focus on building long-term infrastructure. High-quality broadband connectivity is a necessity and very much now a utility: it is no longer something people can afford to be without.
Where there is a competitive marketplace, delivered by wholesale network builders and operators, the consumer will see a lot of competition for their business (in both price and service), which will only act to create value for end-users. However, altnets are having to focus harder on acquiring market share to stabilise the long-term business. This is where companies must now pivot their positions to ensure a forward-looking more sustainable business model.
There’s going to be a fine line to walk between giving broadband away at very low prices now to gain take, and the longer-term plan to drive value from the fibre asset.
With the right opportunities and environment, the fibre industry will see better growth and reach more people. Let’s see what 2023 brings.