According to Ofcom estimates, Altnet fibre deployment exceeded the Openreach build machine for the first time this January, but ‘overbuild’ without customer uptake could threaten further fibre expansion.
The news demonstrates the ferocity of competition in the investment-backed land-grab currently playing out between fibre providers across the UK landscape.
“In the heat of the moment, we’re seeing something of a ‘broadband gold rush,” said Digital Infrastructure CEO, Charlie Ruddy.
The altnets, who have become proficient and digging and getting the cable in the ground, have created business cases that are seeing large volumes of investment flood into the industry.
“Investing in infrastructure is a very attractive proposition at the moment and the volume of cash being injected into the market is staggering,” continued Ruddy.
However, these business cases are predicated on the idea that these footprints will see high uptake of customers.
Around 40% customer uptake will be needed to make digging commercially viable, according to industry estimates reported in the Financial Times, but with these altnets building increasingly overlapping networks, it will be impossible for all network builders to hit this magic number.
Overbuilding will see fibre providers battling for the same customer base, resulting in fewer customers, and undermining their business cases.
“When more than one network exists in an area, it reduces the size of the opportunity for utilisation,” said Brsk CEO Giorgio Iovino.
“A second mover reduces the potential penetration by half, a third by a third and so on. This creates uncertainty on the return for our investment.”
The negative effects of overbuild will also be felt by underserved areas that are in desperate need of faster broadband services.
“By overbuilding, we are effectively duplicating work, and it will take longer for the UK to reach its gigabit broadband penetration,” added Iovino.
But is overbuild all bad news? If you are an end-user in a highly overbuilt area, you would say no as the negative effects of overbuild will be solely felt by altnets. Miller notes that residents in MS3’s native area of Hull have benefited from the breaking up of a broadband monopoly.
“With competition, more effort is put in by the providers into the quality of the product, the price of it and the effort into consumer awareness campaigns, all of which will drive more homes and businesses onto full fibre at a fair price,” he said.
“The consumer now has choice. Overbuild creates competitive tension that forces each operator in that area to be on top of their game, for the benefit of the consumer,” added Iovino.
Furthermore, overbuild often forces altnets to more into areas that are underserved to create a more viable business case and prompts a faster build to ensure no one encroaches on their new land.
Miller suggests that overbuild is a sign of market maturity, an indication that the industry is getting its act together and acting early.
“The days of putting a flag down and declaring a location yours are over, real spades in the ground at pace are needed or someone else will jump ahead of you in the queue to build. To deny that Openreach will come into a built area is to put your head in the sand.
“Better to get on with it now, drive awareness and subscriber numbers and make the best success of your business you can.”
A pragmatic approach
Transparency is key for altnets looking to sidestep the overbuild issue.
Transparency between altnets is important to ensure no surprise competition in low saturated regions and transparency to stakeholders is key to keeping the money rolling into the UK fibre industry.
“We’re incredibly transparent about our build plan with competitors and local stakeholders to avoid overbuild because we know that it’s all about putting the customer’s needs first,” said Ruddy.
According to Miller, another way to succeed in the overbuild scenario is to increase the market share through wholesale partners.
“The business case for overbuilding someone’s well-penetrated wholesale-focussed network is very different to building over someone else’s retail-only network with half the customer numbers on it,” he added.