Report Overview

Winners and losers as the UK fibres up

The speeds made possible by full fibre build are unnecessary for most users in the short term, giving limited commercial advantage to those that can offer them, but are likely to prove essential in the medium/long term

The economics of full-scale, independent alternative networks look very challenging in our view – especially without the support of Sky – although there are some limited arbitrage/cherry-picking opportunities

The Openreach full fibre model makes economic sense under Ofcom’s proposed regulatory framework, provided it retains the lion’s share of the market, although considerable risks remain

Contents

Ambitions are high … but tenuous

Lag in demand for fibre presents challenges

Overbuild inevitable, but not widely accepted

Altnets likely small-scale and niche

Sky key to mainstream altnet success

Virgin Media will play a key role

Need for speed? – in due course …

Fibre use-cases emerging

Reliability and running costs are the short-term benefits

The running debate about the cost of full fibre

Policy/regulatory environment broadly positive for rollout … by Openreach at least

• Ofcom assumes overbuild
• Openreach discounts – uncertainty prevails
• Longer-term regulation also uncertain

Openreach: solid economics likely, but not guaranteed

• Returns attractive but not without risk
• Openreach will likely roll out, in due course

Altnets: challenging economics

• Overbuild is inevitable, and happening already

Some altnet strategies can improve returns

• Retail focus – often a necessity rather than bonus
• Rural focus can be attractive, but question marks remain
• Cherry picking has limited scope and sustainability
• Duct and Pole access (DPA) not yet living up to its promise

Virgin Media: multiple opportunities and threats

Altnet plans unlikely to be realised

List of charts/tables

Figure 1: Implications of full fibre for UK telecoms players

Figure 2: Premises passed by full fibre according to reported plans (m)

Figure 3: Overbuild of CityFibre’s current build plans

Figure 4: Business model issues for altnets

Figure 5: Retail ISPs market shares

Figure 6: Virgin Media infrastructure options

Figure 7: High speed penetration of broadband bases

Figure 8: Bandwidth available, purchased and used (Mbps)

Figure 9: Speed requirements for online use cases

Figure 10: Openreach network physical architecture

Figure 11: Openreach superfast cabinet interior

Figure 12: Openreach local access financials per home passed (£ per month)

Figure 13: Estimated costs of FTTP (and cable) build costs per premises passed

Figure 14: Ofcom’s copper and full fibre new regulation summary

Figure 15: Openreach full fibre incremental economics (£)

Figure 16: Openreach full fibre rollout, premises passed per year (m)

Figure 17: Altnet economics illustrative model

Figure 18: Openreach/CityFibre overbuild stats

Figure 19: Fixed line operators ROCE

Figure 20: UK MDUs

Figure 21: Virgin Media current and projected coverage

Figure 22: Annual new build coverage net adds (000)