Study Claims 1 Mill Rural UK FTTP Premises At Risk of Openreach’s “uneconomic overbuild”

Consulting firm Cartesian has released a new report on the state of the UK’s fibre full broadband market, which unsurprisingly highlights how challenging it is for alternative networks (altnet) to create sustainable business models. The study also claims that c.1 million rural FTTP premises could see uneconomic overbuild if Openreach is required to meet a high exchange coverage threshold for copper switchover.

At this point our regular readers will no doubt already be familiar with the many challenges in today’s market, such as rising build costs, strong competition from rivals (i.e. overbuild and the challenges of growing take-up) and the difficulties of securing fresh investment during a period of high interest rates (not to mention rising debt repayments).

The situation has already forced many altnets to slow or stop their network expansions and focus more on growing take-up through commercialisation, albeit while still under pressure from debt repayments and the difficulties of raising new investment in a market where investors are already starting to see losses. All of this has nudged many altnets toward greater market consolidation, but that’s proving to be a slow and difficult process.

The new ‘State of UK Fibre‘ (PDF) study, which has been commissioned by Gigaclear, picks up on many of the same beats and states that a wholesale altnet needs to achieve a take-up of 44% to reach a 10% Return on Capital Employed (ROCE) – falling to 33% ROCE for retail altnets.

However, reaching such levels becomes much harder to achieve in rural areas (greater than 50% take-up required, says the report), as well as in areas with three of more networks overbuilding each other. The study also estimates that c.20% of UK premises have a cost of build above the level at which it makes economic sense for two operators to overlap.

Admittedly these figures will vary depending upon the business models involved and the approach to build. For example, a Community Benefit Society (CBS) like B4RN, which mostly does soft digs through fields and benefits from free wayleaves (legal land access agreements), may have more flexibility than a provider that tackles the same area via a purely commercial model using traditional street works. B4RN is already running at a take-up of c.50%, but they’re too small to feature in the new study.

Key Findings of the Study

• The UK fibre market is often heralded a success story as FTTP coverage has progressed at pace. However, the path towards full coverage and take-up with sustainable network competition is proving challenging given some significant market issues.

• Key market characteristics posing issues for alternative network operators (altnets) are 1) a highly fragmented infrastructure market with growing overbuild – 47% of the UK now has more than 1 FTTP network 2) a concentrated retail market with the top 3 ISPs having over 70% market share and 3) very aggressive wholesale and retail pricing.

• Collectively these make it challenging for alternative network operators to create sustainable business models.

• The market needs to consolidate to improve economies of scale but this is taking longer than expected given valuation gaps, capital structure misalignment and funding issues.

• Our scenario M&A trajectories illustrate that, while the planned nexfibre acquisition of Netomnia would be a significant step forward in consolidating the market, there remain many moving parts to the consolidation path – it is very difficult to give specific predictions.

• Ultimately, we can still envisage a range of long-term outcomes on a 10-year view of the market – from persistent fragmentation through to a 3 operator or 2 operator state.

• In addition to the uncertainty surrounding the path to consolidation, there are also uncertainties on rural coverage and copper switchover.

• Fibre economics are more challenging in rural areas because of the higher cost of build – this can make the business case very challenging if there are 2 or more operators competing for network share in these areas.

• However, the copper switchover framework proposed by Ofcom includes an Openreach exchange coverage threshold at a fixed percentage (90% or 100%) before its copper price controls are lifted. This threshold may drive Openreach to overbuild existing rural altnets on its copper switchover path.

• The proposed framework therefore risks wasted investment in these high cost of build areas, and poses a risk for the sustainability of existing rural alternative network operators, as the economic case only supports 1 network and even in some cases public funding has been used.

• Our analysis indicates 1) around 1m rural FTTP premises could see uneconomic overbuild if Openreach is required to meet a high exchange coverage threshold for copper switchover and 2) achieving a 90% coverage threshold of all existing and published planned exchanges, would consume nearly all of Openreach’s 30m FTTP ambition, potentially leaving up to 1600 Openreach exchanges on copper (unless Openreach extends its FTTP ambitions beyond 30m or uses alternative technologies).

• Potential solutions include adapting the regulatory framework to allow Openreach to include alternative FTTP networks (as in Greece) or technologies (e.g. satellite) in meeting the coverage threshold or to focus on ultrafast solutions for remaining copper customers rather than FTTP coverage.

• Coupled with this we could envisage Openreach partnering, whether through an aggregator model or directly with another operator, to leverage alternative networks and / or technologies, while maintaining consumer ISP choice through Openreach.

• Overall, our view is that each operator, acting independently and according to its own circumstances, should look to ensure that its pricing and customer-experience strategy sustainably covers its own cost of capital; to move forward with M&A with caution and pragmatically (e.g. with like for like mergers if cash deals are out for now), and to consider alternative paths such as partnering especially in higher cost areas to avoid uneconomic overbuild.

Despite being commissioned by Gigaclear, Cartesian said they retained full editorial and analytical independence; “The analysis, opinions and recommendations are those of Cartesian alone and do not necessarily represent the views of Gigaclear,” said the firm. But there’s also no doubt that they’ve focused quite a bit on one of the Gigaclear’s recent points, which reflects the aforementioned Openreach exchange coverage threshold.

Just to recap. Ofcom’s recent Telecoms Access Review 2026 (TAR) also launched an additional consultation on changing the thresholds for when certain measures are triggered as part of the gradual move away from legacy copper-based phone and broadband lines and on to FTTP. The current approach is based around two key thresholds, which reflect the point at which Openreach can stop selling new copper lines and the point at which Ofcom’s price controls are removed from copper-based services.

The Current Copper Retirement Thresholds

• First Threshold:
Openreach can stop selling new copper lines once it has reached 75% FTTP coverage in an exchange area and has provided 12 months’ notice of its intention to stop selling copper.

• Second Threshold:
Openreach is no longer subject to price controls on copper services once (a) it has reached 100% coverage in an exchange area; (b) 24 months have passed since stop sell was introduced; and (c) Openreach has provided 12 months’ notice of its intention to raise prices above the charge controls.

Ofcom has essentially proposed to change the second threshold by allowing Openreach to exclude certain premises from the second threshold’s calculation for reaching 100% coverage. Ofcom’s new proposal for this included setting a fixed percentage approach to excluding premises, set at 10% of premises in an exchange area (i.e. Openreach would only need to reach 90% coverage, rather than 100%). But the exclusions could only be applied from 1st April 2029 onwards, otherwise the 100% target would remain.

The change is designed to reflect the reality that, in some exchange areas, it may be practically impossible to reach a 100% FTTP build due to a very small number of exceptional premises (e.g. apartment blocks that refuse access, difficulties obtaining wayleaves for certain locations, premises like certain farms that may exist too far away from the road, areas already covered by rival full fibre networks etc.).

However, the study clearly suggests that around 1.1 million rural FTTP premises (the UK has around 5m premises in rural exchange areas) – those currently served only by an altnet, could see “uneconomic overbuild” were Openreach required to meet a high exchange coverage threshold for copper switchover.

The figures are of course open to debate and different interpretations, and we’ve already covered this issue before (here). Currently, 1.4m premises from rural exchanges are unserved by fibre, but Openreach also has yet to set a firm build plan for going beyond their current target of 25 million premises (due Dec 2026). As such it’s presently unclear whether Openreach will actually reach 30m by 2030 in the first place or scale-back / delay their ambition.