Openreach’s FTTP Rollout May Add £7 Per Month to UK Broadband Prices

The CEO of Ofcom, Sharon White, has claimed that Openreach’s (BT) aspiration to conduct a “large-scale” rollout of 1Gbps capable Fibre-to-the-Premises (FTTP) broadband to 10 million UK homes and businesses by around 2025 is “dependent on up to £7 a month being added to broadband bills.”

At present most of Openreach’s primary broadband services use slower hybrid fibre technologies (e.g. up to 80Mbps capable FTTC VDSL2), although they do expect to reach 10 million premises with their up to 160-330Mbps FTTC G.fast solution by around 2020. Outside of that they’re also rolling out “full fibre” FTTP broadband to 2 million premises by 2020 but Ofcom, the Government and pretty much everybody else wants more.

In keeping with that Openreach have been busy consulting on and preparing a new network strategy (due to be published by the end of 2017 but it might be delayed) to support their aspiration for 10 million FTTP premises. The strategy estimated that it could cost £300-600 per premises passed (total of between £3bn to £6bn) to conduct such a deployment, plus £175 – £200 to connect a customer.

However Sharon White states that BT owns a vast network of cable ducts and on Friday she claimed that “around 90% of them have space to lay new fibre optic cable … We estimate that using these existing ducts and poles can halve the up-front cost of laying fibre networks. That would take the average cost of providing a home or business with full fibre from around £500 to £250.”

In order to help fund this the operator has been proposing various changes, such as softer regulation, higher wholesale prices, co-investment deals with other ISPs, a phased migration (i.e. switching off old copper networks as FTTP goes live, which could create a lot of problems if the prices are radically different, as well as competition concerns from existing unbundled ISPs etc.), improved planning and traffic management processes, favourable changes to business rates and so forth (more details).

Nevertheless Ofcom suggests that Openreach are in danger of dragging their feet and being left behind by rivals such as Hyperoptic, Gigaclear, Virgin Media, Cityfibre, Vodafone and others that have all recently been making some significant commitments.

Sharon White, Ofcom CEO, said:

“If all the major broadband providers come good on their public commitments, full fibre broadband will reach up to six million premises, or 20% of the country, by 2020. That would be a step forward from today’s 3%, but still leave the UK trailing other countries. To catch up, we need still bolder commitments.

And the biggest player remains BT. We welcome Openreach’s commitment to reach two million homes with full fibre by 2020. The company has also outlined plans to reach 10 million by the mid-2020s, but dependent on up to £7 a month being added to broadband bills.

We expect BT to go further, and make a reality of the ambition it has set itself to be – and I quote – “a national champion with the scale and expertise to meet Britain’s future communications needs”. We recognise, of course, the competing priorities that any major operator faces – be it investing in sports or other content rights, dividends, pensions or its broadband infrastructure.

But the national priority is clear. Competition for fibre is growing, as will consumer demand for it. As the owner of Openreach – the national telecoms network which is becoming more independent from BT – it should act in the interest of all of its customers who rely on it, as well as its shareholders.”

The thought of having to pay £7 per month extra for full fibre broadband is perhaps, in this market of extreme price sensitivity and low cost models, something that would cause many people to shake their heads. Lest we forget that Openreach’s existing wholesale FTTP products are by no means the cheapest in the market. On the other hand we don’t yet know precisely what this £7 increase represents, so take with a pinch of salt.

Indeed if the cost of FTTP is set too high then it will make it significantly more difficult for Openreach and ISPs to entice consumers to adopt the service at a mass market level. Such pricing could also create anger if users are forced off older / slower but cheaper networks and required to pay the premium.

On the other hand if the wholesale price is set too low then the operator may struggle to make a reasonable return on their investment and that could hinder the scope of any planned rollout. Ofcom have of course shown that they generally prefer lower prices for consumers, which creates somewhat of a conflict. The regulator also won’t want to do anything that upsets competition too much.

As Sharon White concluded, “BT has the financial and technical wherewithal to transform its digital infrastructure for the modern era. The question for BT is – does it lead the transformation today as the self-proclaimed national champion? Or does it follow, playing catch-up on its nimbler rivals?”

Could it be that the market around BT is changing more rapidly than they are able to adapt and that the tough negotiating tactics of old no longer hold as much sway or does regulation tie their hands too tightly? Time will tell. We have asked Openreach for a comment and are awaiting their reply, although it will probably be much the same as they said in October (here).

UPDATE 11:08am

We’ve done a bit of digging into the £7 figure and it appears to reflect an estimate of the incremental value per line that Openreach would need to recover in order to fund the roll-out. On top of that it also appears to be an upper estimate and the real figure might well be lower, at least for that first 10 million premises.

The key aspect here is that such an incremental value change is not quite the same thing as Ofcom’s suggestion of “£7 a month being added to broadband bills,” not least because, as suggested earlier, the cost could be recovered via a number of different methods or approaches (i.e. not merely converting it directly into a wholesale price increase).

For example, you could mitigate such costs by having a longer business rates holiday for new fibre (or lower rates for existing fibre) or encouraging another operator to help fund the deployment costs etc.