UK FTTP: Consolidation and driving uptake

This post originally appeared on June 16 on my LinkedIn feed, which is now my main platform for both short posts and longer-form articles. It can be found here, along with the comment stream. Please follow / connect to me on LinkedIn, to receive regular updates (about 1-3 / week)

Last week I attended the ISPA UK Business Models event, primarily about #FTTP build & adoption.

Two themes dominated:

- Consolidation patterns. The UK has >150 ISPs building #FTTX networks, with a patchwork mix of small/large, urban/rural & vertical/wholesale-only. As interest rates rise & consumer spending is inflation-limited, not all can stay viable.
- How can uptake be accelerated? While many homes are "passed" by fibre, comparatively few are actually signing up for FTTP access services. The lack of revenue for new #AltNets exacerbates the first issue.

Not discussed: data traffic volumes or so-called #fairshare. All the investment is going into initial builds, not capacity upgrades. Streaming and >500GB/mo is actually good news, not a cause for lobbyist handwringing.

The consolidation pathway is complex. There are 3 elements:

- Distress: companies running out of cash, unable to raise fresh capital, and selling assets or the whole business to deeper-pocketed consolidators willing to take a long view of the market.
- Proximity: Mergers or perhaps wholesale/sharing deals between geographic neighbouring ISPs, for scale efficiencies.
- Strategic: larger "mega-mergers" perhaps between wholesalers and integrated telcos, or between B2B and B2C specialists.

There are plenty of challenges. M&A means blending FTTP providers with different vendors, maybe different network engineering qualities, different back-office systems (perhaps proprietary) etc. There may be significant integration costs and practical headaches. Another issue to resolve is competing "overbuilt" fibre grids in urban areas, especially as OpenReach gets to more locations and offers cheap "Equinox2" wholesale.

The uptake question is also thorny. A few speakers pointed out that the UK's FTTC / VDSL broadband mostly proved itself "good enough" during the pandemic, so convincing people they need FTTP or gigabit speeds is a tough sell, especially given cost-of-living issues.

Unless they currently have really terrible connectivity, few people really want to take a day off work to wait for an engineer, risk a day or two without Internet if the switch doesn't work straight away, or pay more and sign up for a new longterm contract.

For some, futureproofing can wait until the future, it seems.

I can think of a number of ways that uptake could be incentivised:

- Trumpet fibre's uses, reliability & maybe impact on property values
- Subsidise an overlap of the old service with the new FTTP, so customers' old connection wouldn't be switched off before it was fully live
- Offer funding to connect homes that are "passed" as long as the connection is fully open-access / wholesale-ready
- Measure, monitor and incentivise B2B use of fibre as well as residential (retail, schools, small offices, home-workers etc)
- Better mapping to find and deal with "exceptions"

All would be enhanced by a consistent view (or scenarios) for the UK #fibre "end state". At the moment that is too amorphous.

CAPEX in telecoms - beware of headline numbers

This post originally appeared on June 12 on my LinkedIn feed, which is now my main platform for both short posts and longer-form articles. It can be found here, along with the comment stream. Please follow / connect to me on LinkedIn, to receive regular updates (about 1-3 / week)

CAPEX numbers are important in #telecoms. But they're also often collected and analysed in a haphazard fashion, or sometimes twisted and misinterpreted. There are examples that wrongly imply casual links or are carefully selected to drive specific policy choices.

- Telco execs watch CAPEX stats as they're important elements of cashflow & also signify key strategies and technology transitions
- Vendors watch #CAPEX stats to understand demand for new products
- Investors watch CAPEX as inputs to their valuation models, and as a barometer for company/industry health and prospects
- Policymakers watch CAPEX as it gets captured in "investment" statistics, and as an indicator for potential regulatory changes (or as a metric of success of previous policies)

Various ratios are commonplace, for both companies and the industry:
- CAPEX vs. revenues
- CAPEX vs. EBITDA
- CAPEX of telecoms vs. tech/hyperscalers
- CAPEX vs. R&D spending
- Fixed vs. Mobile CAPEX
... and so on

The problem is that "telco CAPEX" is also a very vague and malleable concept. Digging into it reveals many more questions - and problems with the methodologies and conclusions drawn, especially where headline numbers are concerned.

Some of the questions I'm currently looking at include:

- What counts as a "telco"? Are you including towercos, subsea fibre operators, municipalities building networks, MVNOs and many others?
- Are historic CAPEX numbers restated when telcos sell or acquire other businesses, especially tower spin-outs?
- Is it meaningful to compare CAPEX for 10 / 30 / 50 year assets such as #FTTP, which will generate decades of new revenue, with last year's figures?
- How do you separate CAPEX for basic coverage vs. incremental capacity vs. "generational" upgrades to fibre or #5G? A lot of CAPEX occurs even if usage is low
- How do you deal with leasing or other financing models? If CAPEX shifts to OPEX, how is it captured in the stats?
- What happens with "cloudified" networks? Firstly they rely on shared (often 3rd-party) assets, and secondly they are *supposed* to lower costs / investments. But will the lower CAPEX be viewed as a sign of distress, not modernisation?
- Is non-network CAPEX broken out (eg retail sites, central offices, datacentres etc)?
- Is "adjacent capex" included and if so, how?, eg in-building #wireless, #spectrum licenses, software development

I hear many commentators and lobbyists claim "#NetNeutrality led to lower CAPEX!" or "Streaming traffic leads to higher CAPEX!" or "There's an investment gap!". Without detailed data - and an analysis of causality - you have to question the veracity & meaningfulness of such rhetoric.

In summary - CAPEX is indeed important. But in fact it's so important, that headline numbers are often useless or misleading.

Ask for details on segmentation, methodology and definitions - if they aren't available, treat the numbers with deep skepticism.

#FTTX #telcos #regulations #networks #fairshare

A critical enabler for broadband competition - Marketplaces for buying and selling open access FTTP

This post originally appeared on Apr 18 on my LinkedIn feed, which is now my main platform for both short posts and longer-form articles. It can be found here, along with the comment stream. Please follow / subscribe to receive regular updates (about 1-3 / week)

Following yesterday's post on mobile #neutralhost operators as aggregators for wholesale access to municipality-level #smallcells and assets/permits, I think something roughly similar is happening in #FTTP.

An aggregation & marketplace tier for #ISPs, #AltNets and #infracos is emerging, among the UK fixed #broadband market's various groups:

- Incumbents with wholesale & retail units, although in theory separated - BT Retail & OpenReach, and VMO2 (Virgin) with its new wholesale JV Nexfibre (with Liberty Global & Infravia)
- AltNets with their own FTTP infrastructure solely for their own ISP retail services, eg Hyperoptic
- AltNets with FTTP for both inhouse ISP retail and wholesale to others
- Wholesale-only FTTP providers such as CityFibre
- Retail-only ISPs, such as Zen & TalkTalk, which buy wholesale fibre (and historically copper / FTTC)

The wholesale market is expanding rapidly, with infracos still building, Openreach accelerating (and trying to discount with its contentious Equinox 2 plan) and existing AltNets looking to supplement slow conversion of homes-passed to homes-connected by offering access to other ISPs.

But the patchwork quilt of wholesale FTTP is very messy. There is growing overbuild, lots of "passed" homes that need extra work to get to individual buildings (or inside them to flats), a mishmash of vendors and construction practices, variable-quality networks and processes - and ongoing consolidation and possible financial woes.

This brings a need for aggregation & simplification. There is both a "buy" and a "sell" side here.

Retail ISPs want access to well-defined and standardised wholesale fibre access, across multiple FTPP owners - both major players like Openreach and AltNets. They want to sell consistent products to end-customers, with promises on provisioning "live next Tuesday at 11am" or ways to deal with faults. They don't want 50 integration projects - but they do want good pricing.

The AltNets, meanwhile, want to be able to sell to those ISPs, even if they've built IT systems and processes that weren't originally designed for wholesale. They also need to conform to Ofcom's new one-touch-switching rules.

Maybe I'll think of a snappier term, but given that the #ConnectedNorth conference took place in Manchester, the term Open Access Solution as a Service, or #OASaaS, seems rather fitting...

There are already a number of OASaaS contenders. Some AltNets formed the Common Wholesale Platform | CWP in 2020. CityFibre is working on its own ecosystem, with Toob as its first partner. There's also The Fibre Café, Vitrifi & BroadbandHub - as well as TOTSCo which is purely focused on the one-touch switching process. Not all seem to focus equally on buy and sell sides.

I wonder if agreed standards or specs (or even regulation) are needed. Perhaps an equivalent to JOTS (Joint Operator Technical Specification) for shared/mobile infrastructure such as neutral host systems? We don't want OASaaS to look back in anger...

 

FTTx and 4G: Speed sells... and it's addictive [+ link to partner analyst research report]

I'm a big believer in 4G. Not just because I can do certain *tasks* faster, but because it just *feels* fast. Some of that perception is from quicker connection and start-up times than 3G, some is from impressive headline numbers when I've run a speed-test, but a lot is from a sense of "potential", knowing it's there if I need it.

It transpires that something similar is true of fibre in the fixed world - especially in FTTP (fibre to the premise) guise, according from some proper consumer research done by friends at Diffraction Analysis. People like raw speed, are annoyed when they can't get it, and are prepared to upgrade further once they do. They might even use it to consume extra operator-enabled services as well.

One of the regular Twitter debates I have with colleague Martin Geddes is whether broadband "performance" is about specific, measurable, application outcomes or not ("QoS" to most of us). He links that to an argument for non-neutrality, as he contends that specific Internet application providers have different performance requirements and should be allowed to "trade" for them, given the limits of the network.

Conversely, I argue that a lot of the benefit and value from fast, open (and neutral) networks is not application-specific, but rather is intangible. It's the potential for both users and developers to do what they want today or in the future, without trading or risking potential competitive abuse or extra friction added by ISPs. 

It's like having a powerful car but sticking (mostly) to the speed limit - you know the "shove" is there if you need it. That extra acceleration on the highway on-ramp doesn't get you to the destination faster - but it feels good. Some even pay a premium for unreliable or twitchy supercars, despite the chance of a bad (even catastrophic) "outcome".

We're human. Perceived performance - and flexibility - is often more important than measured performance. Doesn't matter if it's broadband, cars, fashion, headline megapixels in a camera or a million other areas of life. There is almost always some correlation between "More of X" and "Better outcomes", but even if it's not a perfect correlation, we don't care. 

Purists myopically focused on "optimisation" often don't understand this, or other human emotions like agency/control, a sense of novelty, image and so forth. While these apply more to individuals than businesses, there other factors like privacy and security and agility too.

In other words, "just give us faster networks & then get out of the way. Occasional glitches are a price well-worth paying for freedom and permissionless connectivity".

It's true of 4G - most people upgrading are happier than with 3G, although obviously some of that is down to the device itself, or perhaps better coverage with 7/800MHz vs. 2100MHz on some networks. Many notice the initial "whoosh factor" - that it's just fast even if they're doing something that doesn't need it. Sports-car feeling, again. And over time, developers are exploiting that, even if they know that there will sometimes be issues they have to work around

And that's the thing - the vagaries of mobile networks (coverage, congestion and so on) have taught application and content providers to work around performance limitations and occasional failures. To expect them and plan for them - so they use cacheing, variable bitrates, UI interventions to warn users of problems, clever codecs and error-correction. There will always be a weakest link. It's not perfect, but it beats having the hassle, friction and perhaps commercial conflicts-of-interest involved in paid QoS. It's why "non-neutral" mobile business models won't succeed, even if the law allows.

But back to fibre and FTTx, and some hard data. I don't often reference other analysts and consultants. (Martin G is one that I collaborate on about voice/comms, and disagree with on networks). But when it comes to the fixed-broadband world and especially fibre networks, access business models and wholesale metro, I'll gladly defer to Benoit Felten, who's been covering that beat for years. He now runs his own research firm, Diffraction Analysis, originally out of France although he's now living in China.

Many telcos have been slow at rolling out fibre, often because they have been unconvinced that consumers really want it, would pay more for it, or might adopt additional services as well.

Diffraction has been doing some interesting work in collaboration with the FTTH Council Europe, looking at the real-world experience of consumers who have fibre broadband, and comparing it to ADSL. Benoit has now published research on Sweden (one of the most developed FTTx markets in Europe), and has been working on France and Portugal studies as well.

I've had a chance to have a look through the Sweden report, and it corroborates my views in various ways (although it doesn't tackle neutrality, per-se):

• Fibre is perceived to be higher-quality than DSL, even by people who don't have it.
• FTTP users are more "satisfied". And higher speed FTTP equates to even more satisfaction. It's not about individual "outcomes" specifically. 
• Fibre improves satisfaction with various "speed" metrics - latency, upload, download, variability and so on.
• Individual users are happier with FTTx when asked to compare with their past DSL experiences.
• Most DSL users perceive fibre to better (presumably because of friends who have it, or media coverage).
• Upgrades, both DSL-to-FTTP and FTTP-to-faster-FTTP are typically linked to wanting more "performance", ie speed.
• Lots of DSL users won't be upgrading soon, either because they can't get FTTP where they live, or because it's perceived as too expensive.
• FTTP correlates with higher use of triple- and quad-play, although it's not 100% clear which is cause & which is effect here.
• FTTP users do more stuff like streaming, video-calling, VoIP, tele-education etc.
• FTTP users seem interested in advanced services (perhaps with operator involvement) like telemedicine, digital home services, TV videoconferencing etc.

There's a lot more in the full report, and I'm looking forward to seeing the outputs from other countries too. But two inferences leap out for me, although the wording of the survey makes it hard to be 100% certain of respondent perception:

• People like fast Internet access, for its own sake. Speed sells, and feels good irrespective of specific applications or outcomes.
• People who like fast Internet also seem more interested in possible non-Internet network services too.

To me, this suggests that not only is there a business-case for investment in faster networks (FTTX, 5G etc) but that we need to consider both measured and perceived performance. Tangible and intangible. This is something missed by most of the economic-led studies on broadband - and certainly by all those debating the FCC's Title II Net Neutrality plans this week.

The Diffraction Analysis full report (32 pages) titled "FTTP Dynamics in a Mature Market - Swedish Quantitative Analysis" is available in two versions: 

• 1-3 users (€1000 - click here)
• Corporate licence (€1500 - click here)

Contents pages are available on request via email:
information AT disruptive-analysis dot com
 
The links are to Diffraction Analysis' billing (although my company Disruptive Analysis has a financial interest here).  You should get the report emailed through within 24hrs (NB the time difference given Benoit's location in China).


Note: if you're based in France you'll need to add VAT - if so, or if you want to pay by a method other than Paypal/credit card, or get more details about the report please get in touch via information AT disruptive-analysis dot com

(Note: I wouldn't be recommending research if it wasn't thorough, interesting, and in analytical coherence with my own view. However, it's Benoit/Diffraction's product, so the T's and C's are not my own)