If the government is ever to achieve its much-trumpeted goal of “levelling up” the UK economy, the whole country will need reliable ultrafast internet connectivity. This is why Westminster is keen to roll out gigabit-capable broadband nationwide before the end of the decade.
The aim is to enable businesses to compete on the same technological playing field, whether they’re in a bustling city centre or a remote rural outpost. A fully fibreoptic cable network known as fibre to the premises/home (FTTP/H) is the way to achieve ultrafast download speeds in the region of a gigabit per second. To give some perspective, 1Gbps is roughly 17 times faster than the average domestic superfast connection – about 60Mbps – which often uses copper cable over the last metres between a distribution point on the street and the premises in a less efficient set-up known as fibre to the cabinet.
The government’s intermediate target is to provide at least 85% of the nation’s premises with gigabit connectivity by 2025. The pace of the full-fibre roll-out so far suggests that this is in reach. As of 7 July, 69.2% of homes in the UK were gigabit-capable, compared with 42.2% the previous July and only 22.6% the year before, according to comparison site thinkbroadband.com.
Kester Mann is director of consumer and connectivity at research and advisory company CCS Insight. He notes that the roll-out’s rapid progress over the past two years has been aided by “long-overdue investment” from BT subsidiary Openreach – the sector’s dominant player – and the arrival of dozens of alternative network providers, known in the sector as altnets.
“Many of these have backing from wealthy investors,” he adds. “It’s a far cry from years of non-commitment and inactivity.”
Despite the encouraging signs, full-fibre deployments in most other European countries are further advanced. The latest data from industry body FTTH Council Europe shows that, as of September 2021, Iceland, Spain and Sweden were leading the way, while only Austria, Belgium, Germany and Greece had a lower full-fibre penetration than the UK.
Openreach’s CEO, Clive Selley, told the Financial Times in June that Brexit was making it harder for his company to hire skilled workers from the EU and thereby “constraining the rate of fibre build” in the UK.
These labour shortages, combined with energy price inflation, rising interest rates, and supply chain disruption, are threatening to dampen some of the recent momentum, according to Mann.
It’s clear that more will need to be done to support the roll-out, especially in rural areas, if the government wants to prevent its 2030 target from becoming nothing more than an ultrafast pipe dream.
Matt Rees is chief network officer at altnet Neos Networks, which provides telecoms services to the public and private sectors. He observes that “it is, of course, more economically viable for new fibre to be laid in dense urban areas – which has been the focus of early deployments. But that leaves ‘notspots’ in more rural areas, creating bigger disparities across the country.”
One of the big challenges of building rural networks is dealing with wayleaves. These are contractual agreements between telcos and land owners granting the former legal access to private property so that they can build and maintain equipment. Securing one can take several months to a couple of years. If a wayleave cannot be agreed, the telco may have to reroute its planned network.
The industry is asking the government for more help with wayleaves as part of the Project Gigabit, the latter’s £5bn programme to level up the 20% hardest-to-reach premises in rural areas.
Westminster has committed less than a quarter of the pledged funding so far, according to Mikael Sandberg, executive chairman at VX Fiber, a Swedish FTTP network provider. This slow disbursement, he says, “has left industry players concerned that the 85% target remains challenging”.
Rees adds that other elements of the government’s plan leave much to be desired. “The strategy is great in principle, but in reality there isn’t a level playing field when it comes to securing private and public funding to build fibre networks,” he says.
This has tended to put altnets at a disadvantage. For instance, Openreach has hiked the prices they must pay to use its ethernet products to feed their FTTP broadband to customers.
To complicate matters, towards the end of 2021 Ofcom approved Openreach’s so-called Equinox offer to cut the price of its FTTP network for internet service providers in return for their long-term commitment to using it. This prompted immediate protests from altnets that had been pumping billions into rival FTTP networks – most notably, CityFibre.
The concern is that the Equinox pricing scheme could weaken full-fibre competition and infrastructure deployment and innovation by undercutting altnets’ prices and locking internet service providers into lengthy contracts. If altnets struggle to attract customers as a result, it could drive some out of business.
Equinox has been described by analysts at Barclays as a “land grab” that weakens the business case for altnets. The Independent Networks Cooperative Association has predicted that altnets will cover nearly 30 million British homes by 2025, but that forecast has started to look over-optimistic.
What’s more, where altnets do deploy their networks, there’s a real possibility that Openreach could simply build over them.
“Multiple providers laying fibre in the same area, all targeting the same households, is an inefficient, costly scenario,” Mann says. “That would do little to assist the government’s plans to bring more people online and narrow the digital divide.”
The race to be the first to lay fibre in an area risks fragmenting the market, he warns. It means that some altnets are destined for commercial failure. For many of the smaller players, then, joining forces may be the only way to survive.
Ultimately, Openreach’s Equinox gambit and overbuilding could result in full-fibre infrastructure losing its value altogether.
As Rees observes: “Levelling up is required in the supply chain too.”