Outgoing IT chief Philip Jansen has a favorite mantra: “Build like anger.”
Jansen has used the phrase repeatedly amid the fierce race to roll out full fiber broadband across the UK. Boris Johnson took the first step with the promise to reach every home in the country by 2025.
The target not only triggered BT’s investment surge, but also led to the creation of a number of new competitors who emerged to establish their own rival networks.
The goal of full coverage by the middle of the decade was always challenging. While the original promise has been watered down to an 85 percent target, the promise of full fiber connectivity has been replaced with the more forgiving term “gigabit capable.”
Under current plans, full coverage, defined as 99 per cent of the UK, should be achieved by the end of the decade.
But now, the darkening economic climate is casting new doubts on the plans. Rising interest rates have sparked a financial crisis among debt-financed rivals, while inflation-busting price increases have left many consumers wondering whether they can pay their bills.
According to the latest data from Think Broadband, 79 percent of households now have access to gigabit-enabled connections; This means the UK is on track to meet its interim target of 85 per cent coverage by 2025.
But there is less certainty about the next stages of the plan. The government has pledged £5bn to help reach the last segment of the population whose rural locations make connecting difficult and expensive.
Many of these contracts have already been distributed to alternative providers known as “subnets,” but a potential wave of business failures could threaten this goal.
Spurred by low borrowing costs, alt-nets have launched debt-financed efforts to connect British homes and compete with BT.
But it wasn’t simple at all. Competition has made overbuilding inevitable as multiple providers network in the same town or city, which has hurt uptake. Rising costs due to inflation running riot also had negative effects.
But what has been most damaging has been the recent increase in interest rates, which has increased the cost of servicing debt.
This saw Cityfibre’s losses almost double last year to £210 million, while Hyperoptic’s losses rose by 60 per cent. Both companies had to cut jobs.
Others, including London-based Community Fiber, have been forced to slow down construction plans and instead focus on connecting customers to existing infrastructure.
The crisis fueled predictions that only a handful of players would survive. Dana Tobak, Hyperoptic’s general manager, acknowledged that “it is inevitable that some will fail and some will succeed.”
Mike Fries, boss of VMO2’s parent company Liberty Global, went further and said only VMO2 and BT would remain.
BT’s Jansen said the old monopoly was “ready and waiting” to step in.
Inevitably, the comments ruffled feathers. One of the sources complains that big companies’ “sole aim is to undermine infrastructure competition.”
But it’s more than just talking. Ofcom is drawing up plans for a “supplier of last resort” regime, similar to that seen in the energy sector, to ensure there is no disruption to broadband services if providers begin to collapse.
James Barford, an analyst at Enders Analysis, said subnets were under “a lot of pressure” and consolidation was “generally expected.”
While it was understood that Ofcom had prepared emergency plans, it was stated that these were not specific to any company.
Matthew Howett, founder and managing director of Assembly Research, argues that one of the main purposes of subnets is to force Openreach to build its own network faster.
“That dynamic is already over, it’s happened… so I think once those fireworks are lit, the vast majority of the Gigabit Project will happen,” he says.
Barford adds: “Achieving full coverage is already something that requires government intervention, and it’s not entirely clear whether we’ll get there by 2030 or shortly thereafter.”
The problems are not just with the providers; The rising costs were also felt by consumers.
Telecom companies increased their bills by up to 15 percent in April, and price increases that reduce inflation are expected to continue next year.
Consumer group predicts telecoms providers will make almost half a billion pounds in profits in 2024 from mid-contract price increases on mobile and broadband bills alone.
There are growing concerns that this may affect uptake. New figures from Ofcom show 7 per cent of adults in the UK do not have internet access at home, with a quarter of them blaming high costs.
This rate increased to over one third in the lowest socio-economic groups.
Affordability is an important issue for Ofcom, which is responsible for protecting consumers.
The regulator has launched investigations into inflation-related price increases in the sector, as well as whether mobile and broadband companies are being clear enough about how much they charge. Findings in the coming weeks.
“The broadband market is not growing as fast as you would expect as it has in the past, and the cost of living crisis probably has something to do with that,” says Barford.
However, he adds that the slowdown is also due to an increase in demand during the pandemic and says telecommunications prices generally remain affordable.
But it’s not just about prices. Broadband providers will also need to convince consumers of the benefits of full fiber broadband.
“Our research has shown that people don’t always understand the benefits of full fiber and don’t want to pay more for their broadband,” says Rocio Concha, Where’s director of policy and advocacy.
“The government must be mindful of this, as well as other access barriers, as it moves towards achieving gigabit capacity broadband across the country.”
As costs continue to rise, broadband builders risk not being able to recoup their gamble.
A government spokesman insisted the move to full fiber was “on the right track”.
They added: “We are supporting providers of all sizes to roll out their networks broadly and are monitoring the market closely to ensure people in the UK can get the connectivity they need for decades to come.”