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When it comes to broadband, can any telecoms companies take on the might of BT?
August 1, 2017

The lone engineer trundles down another stony street. There is just one more house to attend to before he is free to go home. This rural village in Suffolk had a power cut last week, now he must fix the broadband connections of a dozen buildings. Home owners are not happy. But this is the only broadband available this close to the coast. What choice do they have?

For many internet users in the UK, BT (BT.A) is still the only viable broadband option. That may be hard to believe for anyone who has trawled through price comparison websites looking for the best deal. But despite a big increase in the number of service providers, the vast majority of telecoms companies buy their internet connections from Openreach – BT’s cable company provides the broadband to roughly 80 per cent of British homes.

 

But change may be coming. In the past few months BT has been forced to fend off several threats to its dominant position.

This March saw the culmination of a two-year review by the UK’s telecoms regulator, Ofcom, into the group’s ownership of Openreach. After pressure from BT’s competitors including Vodafone (VOD), Sky (SKY) and TalkTalk (TALK),

the regulator concluded that the group would be allowed to retain ownership of Openreach if it was spun out into a separate legal company with its own management team.

Just one month later the telecoms giant was hit by Ofcom’s largest ever fine: £42m plus £300m of compensation to customers following delays to line installations between 2013 and 2014.

All the while, competitors are building out their own networks. In 2015 Virgin Media – the only large competitor with its own network of cables – pledged to connect approximately 4m more UK homes and businesses to broadband speeds of 152Mb, at least twice the fastest speeds available from BT. CityFibre (CITY) is in the process of laying its own wholesale cable network and now has 1,100km of fully connected fibre optic broadband. But do challenger companies – and by that we mean everything other than BT – provide a credible threat? Or is BT so important to the British telecoms market that it will continue to reign untouched by competition?

 

Consumer competition

In the consumer market there is competition afoot.

BT’s Infinity product may be the only full-fibre option in the UK that can provide fibre optic internet all the way to the home (fibre-to-the-premises), rather than merely to the street cabinet (fibre-to-the-cabinet), but it is only available to 1.7 per cent of UK homes.

Hyperoptic, a London-based internet service provider, recently secured £100m of investment to accelerate its one gigabit (1,000 megabits) full-fibre network. Gigaclear has also got the backing of investors: Prudential and Neil Woodford recently contributed to a £30m fundraising. Meanwhile CityFibre, TalkTalk and Sky have teamed up to trial their FTTP connections in 14,000 homes and offices in York.

As well as the funding, the initiatives have government backing. Ofcom recently revealed its hopes that within a few years 40 per cent of UK homes will have access to a full-fibre option other than BT’s.

That said, there are some parts of rural England where laying new fibre cables is incredibly uneconomic, making it unrealistic for any company but BT to lay cables there. Even if companies do chose to invest in rural areas they will still have to be hooked up to the core network infrastructure which is owned by Openreach.

 

Business blues

In the business market, Openreach’s dominance is even more pronounced. At present, the telecoms giant leases its superfast lines on a wholesale basis, meaning the line and the equipment used to power the connection are bought together. This back haul of pipes is known as ‘dark fibre’, and last year Ofcom ordered BT to introduce a dark fibre product that would open up access for the company’s rivals, including Vodafone and TalkTalk. Under the proposals, the competitors would be allowed to stick their own equipment onto the ducts and pipes in the dark fibre network, while paying only minimum costs for line rental. The regulator claimed that this would help speed up broadband to the business market.

But CityFibre and TalkTalk – which are in the process of developing their own fibre optic networks – opposed the ruling, stating that Ofcom was contradicting itself by encouraging fibre rollout in the consumer market but continued reliance on Openreach’s dark fibre in broadband for business.

In late July a Competition Authority Tribunal (CAT) quashed Ofcom’s proposals, stating that the regulator had “erred” in its definition of the business market. Openreach is no longer obliged to launch its cheap dark fibre product in October as originally planned.

For companies that operate their own fibre networks – including Openreach – the ruling is certainly a relief. But whether it will open up the market for competition remains to be seen. As in the consumer market, it is widely accepted that Openreach’s dark fibre – as the core infrastructure of the UK’s broadband network – is still in a dominant position.

 

What’s fibre got to do with it?

Broadband hit the market in the early 2000s, breathing new life into telecommunications. Until that point, the internet had relied on a single telephone line which meant that users could not send an email and make a call at the same time. The speed of this early ‘dial-in’ internet would make the modern internet user flinch: at just 56kb a second, a single song could take 30 minutes to download. The copper cables of the 2000s saw rapid improvements in download speeds. By 2008 it was possible to stream music directly from the internet and online television followed not long after that.

Today, consumers want (and need) more. The internet is no longer merely relied upon for communications. We research (or google in modern speak), read, watch, listen to and store a huge array of content online and a fast internet connection is vital.

The traditional copper cables are therefore being assigned to the history books. Instead we are increasingly using fibre optic cables (made from plastic and glass) which offer download speeds many times faster than copper.