Zen Internet Talks Ending the Fibre Tax and Working with Altnet ISPs

Question 2. At the time of writing this, Zen has unbundled around 400 of BT’s exchanges (55% UK coverage) and a further 50 are expected to be added before the year is out (65% coverage). Going forward we understand that there’s an ambition to do this for 987 exchanges by around 2025.

Can you tell us a bit more about why you’re doing this and what advantages unbundling like this will have for your FTTP and wider Ethernet line of products etc.?

Richard’s Answer:

We have 450 exchanges live today (the 50 that were in progress have all now been delivered), and our target is to reach 700 exchanges by the end of 2020. That will give us around 80 per cent coverage of the UK for fibre broadband. This investment will give us the big advantage of being able to compete on a level playing field with our biggest competitors. Without these new exchanges we just couldn’t achieve the price points to do that. It also gives us more control of our network so we can continue to build on our reputation for reliability and exceptional service. On top of this, it allows us build upon our already successful wholesale business.

Unbundling like this gives us benefits across both our broadband and Ethernet product portfolios. We sell significantly more on-net Ethernet circuits compared to off-net circuits due to the better pricing we are able to achieve. In broadband, we charge the same price on-net and off-net, and our on-net circuits cross-subsidise our off-net circuits. So the greater our on-net footprint, the better our commercial model will be as we scale up. Unbundling gives us choice too – we can choose to be an early adopter because we do not have to rely on a wholesale provider.

Question 3: Last year Zen spoke of their desire to become a £100m business within 3 years, rising to £150m by 2023 and then £250m within 10 years. What sort of network and strategy changes do you envisage will need to be made in order to achieve the latter target (we assume the £100m goal is a fairly safe bet since Zen’s last turnover was £71m)?

Richard’s Answer:

A key theme in terms of our network strategy is going to be the amount of bandwidth that we will require. We will need to move from a network carrying 100’s of gigabits per second to one with the capacity to carry several terabits/sec. We are currently designing this new network.

Although Moore’s Law strictly refers to the number of transistors on a chip, it is widely used to refer to the exponential increase in compute power, memory & storage, and bandwidth that we have seen since the birth of computing, and will undoubtedly see for the foreseeable future. A typical Zen customer uses about 2% more bandwidth each month – so around 25% more bandwidth each year.

Our expansion plans therefore involve us going to around 700 fibre parent exchanges and installing metro, regional and national networks to enable both superfast and ultrafast connectivity for our customers. Based on what we know this will place us in the top five broadband networks in the UK.

Regarding our commercial strategy, our goal is to move from being a niche premium player to becoming a true challenger brand to the biggest names in our industry, whilst continuing to build upon our reputation for service quality and reliability. Our aim is to be a conscientious challenger – doing the right thing for our people, customers, and supplier relationships based on our people-first values.

My long-term dream goal is that one day the broadband “Big 4” will be known as the “Big 5”, with Zen being the fifth member of that group.

Question 4. Much has been said about the future of Openreach’s hybrid fibre G.fast technology, which was originally planned to cover 10 million premises by the end of 2020 and was later reduced to around 5.7 million.

Some indications we’ve seen even suggest that the roll-out may be scaled-back yet again in order to better focus on “full fibre” (FTTP) as the future. As one of the first providers to sell such products, what are your thoughts on G.fast and its future?

Richard’s Answer:

The beauty of G.fast compared to FTTP is the speed and convenience of deployment. Rather than having to run a new fibre to each individual building, which is an enormous amount of work, G.fast can be deployed much more easily with a cabinet upgrade.

For those customers who are close enough to the cabinet, G.fast has the capability to supply their broadband needs for the next ten years and beyond. You have to therefore ask whether it’s worth the extra cost and effort to deploy full fibre, or whether to wait until those old copper cables truly run out of steam.

The Government seems hooked on full fibre and not at all interested in G.fast. I’m sure that this has been influential in Openreach’s decision to scale up FTTP and scale down G.fast.

My conclusion on G.fast is that it’s a worthy technology that has the capability to deliver Ultrafast speeds to a significant proportion of the UK for many years to come. However, with so much focus currently on full fibre, I fully expected Openreach to further scale back its G.fast plans in favour of FTTP, and this now appears to be happening.

Question 5. Earlier this year Cityfibre lost a Judicial Review of the UK advertising watchdog’s decision (or at least its interpretation of related research) not to clamp down on ISPs that advertised slower hybrid fibre (FTTC / VDSL2 / Cable etc.) services as “fibre”, “fibre broadband” or “fibre optic broadband” etc.

The operator had wanted only true “full fibre” (FTTP) providers to have the right to use such terminology in their adverts. Do you think the court made the right decision and what would you have done differently, if anything?

Richard’s Answer:

Yes, I think the court made the right decision. The important thing for the consumer is that “Fibre Broadband” – e.g. FTTC – is significantly faster than standard / copper / ADSL broadband, which it is for the vast majority of people.

I can see Cityfibre’s motivation, but the benefit of them being successful would have been Cityfibre’s benefit rather than a wider benefit for consumers.

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