VX Fiber – What UK FTTP Broadband Projects Can Learn from Sweden

5. The Government has now revealed the strategy for their £5bn UK Gigabit Broadband programme, which has adopted a mix of vouchers, gap funded deployments and some continuation of the Local Full Fibre Networks (LFFN) model (i.e. dark fibre for public sector sites). But it also softened the initial coverage target to a “minimum” of 85% (UK premises) by the end of 2025 and only released £1.2bn to support that.

After that there’s talk of more investment being released to help the scheme “get as close as possible to 100%” coverage, but only if the “industry can demonstrate it has the capacity to deliver further and faster.”

In terms of pros and cons, what are your thoughts on the new gigabit programme as it exists today?

Mikael’s Answer:

It came as no great surprise to the digital infrastructure industry, when the target to connect 100% of UK homes and businesses was reduced to 85% – it had always been seen as a political ambition.

The UK Gigabit Broadband programme (including the various funding and investment options); and other announcements that have been made during past Spending Reviews, Budget Statements, election manifestos and Queen’s Speeches – are proof of the UK Government’s commitment to getting the UK connected. Despite this, one of the main barriers to the deployment of a UK-wide FTTP network is funding – particularly in rural areas. What is on offer from the UK government merely scratches the surface of what it needed to get to 85%, let alone 100%. 

First, it would be remiss of us to forget – or not acknowledge – that over the past 18 months the country’s fiscal position has substantially worsened. The pandemic has placed an enormous and unexpected burden on the UK economy. However, the resulting financial strain must not be allowed to derail the UK’s infrastructure spending ambitions – it will be internet connectivity that helps the UK with future economic growth and ‘building back better’.

Secondly, let’s be clear that the Government’s policy for ‘gigabit-broadband infrastructure’ has always been that it will be mostly built by private investment. And at a time when public purses have been stretched by unprecedented COVID-19 support measures, the industry cannot, and should not, rely solely on public funding. 

The private sector now has an even more important role to play in helping to bridge the gap needed to deliver the Government’s ‘Connected Britain’ vision. In this context, private funding and/or investment is one of the solutions available to fibering up, faster. In fact, private sector investment should be a major driver of the UK’s ‘infrastructure revolution’. 

Here lies the problem – it’s not always been made that easy for private investors to play their part. The government, together with OFCOM, made a commitment to make policy reforms to promote a competitive market for the roll-out of gigabit- capable infrastructure. But a lack of clarity surrounding the availability of private investment opportunities within infrastructure projects still exists. 

A vital part of any ‘UK Gigabit Broadband Programme’ needs to address how the UK Government plans to reinvigorate the infrastructure ‘investment’ market to support its ambitious infrastructure agenda, and provide better connectivity, at good value for taxpayers. Part of this is for the Government to commit to an approach that gives confidence to investors and capitalises on the attributes of businesses and the public sector.  One way of doing this is to open-up – and communicate the availability of – individual regional or local digital infrastructure projects to multiple external investors. Not only does this present a huge and scalable opportunity it could open-up a more sustainable territory for private investors. This will help the UK establish itself once again as a world class destination for investment.

6. Two of the biggest challenges faced by all operators during 2020, and into the first half of 2021, has been the global COVID-19 pandemic and Brexit (e.g. the January 2021 trade agreement). Combined, these two issues have placed complex pressures on everything from the workforce (there was already an issue with a lack of skilled fibre engineers) to supply chains. What problems did these cause your own company and how did you adapt?

Mikael’s Answer:

For VX Fiber, collaboration has always been at the heart of our operations. Working closely with key stakeholders during the global pandemic has been crucial to see us safely through these difficult times. Our goal hasn’t faltered, a gigabit-connected Britain remains well and truly in our sight.

When it came to the challenges we faced as a workforce, these were predominantly concerned with day-to-day working practices. During the first lockdown in 2020, the telecoms industry was added to the list of the critical sectors vital to the Government’s response to the pandemic. It also made the decision to actively encourage local authorities not to introduce blanket refusals of permits or notices for street works. In pre-COVID times, the process to get the greenlight to undertake street works to install fibre could take up to 3 months. 

Along with others in the industry, VX Fiber worked closely with the Government to ensure strict adherence to guidelines and directives – ensuring that the health and safety of contractors, staff, customers and the general public were the number one priority for the business. The key-worker status – given by the government, meant that the industry was able to forge ahead with the roll-out of new full fibre networks, but with modifications that considered all tasks through a protection-orientated lens. 

Any works involving network maintenance and fault repairs, customer repairs, network build and increasing network capacity were able to continue as normal. Although most new installations in customer premises were put on hold during the critical lockdown period, these are starting to be reinstated against stringent operating procedures.  The industry was, and still is, committed to ensuring that targets are not side-lined by the coronavirus crisis, so it has been prepped and ready to get customers connected in the safest possible way.

The pandemic is continuing to hamper some parts of the full fibre connectivity supply chain, but the government’s response enabled network construction to accelerate. Those involved in the rollout of full fibre adapted to the working environment to ensure there was no significant delay to gigabit speed rollout across the UK.

7. This year saw Ofcom publish the outcome of their first combined Wholesale Fixed Telecoms Market Review 2021-26 (FTMR), which proposed major changes to help boost investment in “full fibre” broadband and high-capacity Ethernet services for residential and business connectivity markets. What do you think they got right, and what do you think they got wrong (if anything)?

Mikael’s Answer:

The emphasis on wholesale I think is absolutely right.  However, as mentioned earlier, the main barrier to getting Britain connected is funding. Private investment – in addition to public funding – is needed if the UK government is going to hit the 85% target. However, it’s not always been made that easy for private investors to play their part. The Government, together with OFCOM, made a commitment to make policy reforms to promote a competitive market for the roll-out of gigabit- capable infrastructure. But a lack of clarity surrounding the availability of private investment opportunities within infrastructure projects still exists. This needs to be addressed, and this needs to happen fast.

8. Earlier this year Ofcom also proposed a new “one touch” migration (switching) system for UK broadband ISPs (here), which from December 2022 will make it easier for consumers to switch between ISPs on physically separate networks (i.e. extending the existing Gaining Provider Led [GPL] solution to include alternative networks, rather than just Openreach).

Broadly speaking this new system, while adding new challenges for smaller providers, will still represent an important change that should help alternative networks to attract customers away from the biggest players. But are there any areas where you think Ofcom could have improved their proposed approach?

Mikael’s Answer:

Consumers often run into trouble if they wish to swap from a bundled package (e.g. broadband and phone) to, for example, a standalone broadband deal because your old ISP could end up charging you more for the line rental to remain with them if they cannot also serve you broadband.  Subscribers on service bundles are not being offered clarity when they only want to buy a part of what is being offered.  I believe in a future when consumers are free to choose the best service from the best suppliers and can easily combine these in a way that suits them (not the supplier).  Such regulation has already been implemented in Germany for example and I think this is an area that needs to be addressed with urgency in the UK.

9. Over the next four years we will increasingly see the market move away from traditional phone lines (PSTN) and adopt a more IP (e.g. VoIP) based future, which requires ISPs to be prepared with alternatives (something full fibre providers already need to consider). 

What kind of solutions do you offer for this and how will you tackle situations where a home covered by your network may only require a home phone service (i.e. no broadband), possibly as part of a migration away from traditional (non-IP) phone provider?

Mikael’s Answer:

This is clearly an important issue, especially for vulnerable subscribers. Our independent Service Provider partners are well-equipped to provide the necessary IP alternatives and increasingly subscribers are turning to mobile solutions for their voice services.

10. At the time of writing there are around 70-80 alternative network providers that are building gigabit-capable fibre networks for consumers (summary). The market is becoming increasingly crowded for altnets and history suggests that a rise in consolidation will almost inevitably follow at some point. What are your views on the potential for future consolidation in the market, and do you see your own network as being ripe for purchase by a rival further down the road?

Mikael’s Answer:

It’s encouraging, and we are proud, to see so many altnet providers including VX Fiber become such a driving force in helping the UK to achieve its ubiquitous internet connectivity goals. Interestingly, to build and to own passive fibre infrastructure does not benefit much from economies of scale and therefore many small [passive] fibre networks can survive well.  When it comes to operating such networks, or indeed selling services, there are however, very large economies of scale.  As a fibre operator partner VX Fiber can bring such scale to a small [passive] fibre network and thus we would benefit from a fragmented [passive] fibre market.  Based on these economic fundamentals, in most markets we observe consolidation in the service sector first where economies of scale are the greatest.

11. One other significant risk from the emergence of so many altnets is that it will probably fuel a greater degree of consumer confusion, thus making the market much harder for the ordinary individual to understand (i.e. lots of different networks, with different availability and different ISP choices etc.). What do you think should be done to help communicate and simplify the market for consumers?

Mikael’s Answer:

I strongly believe in the need to reignite the debate around fibre confusion.  Your review in December 2020 “WIK Study Finds Consumers Still Confused by Fibre Advertising” highlighted the need for the UK to introduce much stronger guidelines and/or legislation to help dispel this confusion.  The clearest and most user-friendly approach could be the introduction of a labelling scheme similar to the traffic lights introduced in Italy, whereby technologies with differing characteristics would be colour-coded.  The approach taken in France where only ISPs delivering fibre into the home or premises are permitted to use the term ‘fibre’ in advertising material is another model that has merit in its simplicity.

12. Commercial competition between full fibre providers in urban areas has become increasingly aggressive. Indeed, over the past few months we’ve started to see more examples where three providers have all built networks in the same area (overbuild).

The Government’s 2018 Future Telecoms Infrastructure Review (here) made clear that “at least a third (with the potential to be substantially higher) of UK premises are likely to be able to support three or more competing gigabit-capable networks.”

On the one hand this gives consumers extra choice and a better chance of getting a good deal. On the other hand, locals suffer more disruption from multiple builds, while overbuild does little to improve overall UK coverage and can also make it harder for providers to attract investment by stretching the payback period or risk. What is your position on all this?

Mikael’s Answer:

I am a strong proponent of creating a competitive environment which enables customers to enjoy exceptional services and freedom of choice at competitive prices.  However, as you say, aside from the fact that overbuild does little to improve overall UK coverage, why put local residents through the disruption of multiple builds.  It would make sense not to overbuild existing networks and avoid deploying a second or even third fibre network to areas where an open access full fibre network already exists.  Instead, why not lease capacity from existing network operators?  Why not work with other network providers, instead of overbuilding them, at least until we have full coverage across the UK?

13. Speaking of competition and overbuild. Last year the Independent Networks Co-operative Association (INCA) proposed the creation of a Common Wholesale Platform (CWP), through which alternative networks could provide wholesale services to third-party providers and ISPs.

INCA believes that a CWP would enable groups of independent wholesale network providers to “combine together and offer a real competitive alternative to the limited number of large players which currently dominate the market.” What are your thoughts on the pros and cons of this idea?

Mikael’s Answer:

Fundamentally, offering a large as possible universe to Service Providers through one interface would make the altnet sector more competitive. It is however really important to understand that it is not just a question about a technical interface.  Service Providers should be offered standard commercial and operational interfaces as well.  VX Fiber has such interfaces, which have been honed over our 20-years of operating history and we are keen to help unify the altnets for the benefit of Service Providers.  VX Fiber is, and always will be, a ‘true’ Open Access operator – giving customers a choice and the ability to select the services that match their specific needs from a wide-range of Service Providers. 

As the average UK consumer does not yet see the difference between the fibre and the service, UK residential and SME business customers can buy both a fibre connection and service, as a single proposition from LilaConnect.co.uk (VX Fiber’s sister company and fibre-deployment business) until we begin to get a level of “fibre maturity” seen in other European countries. But as a neutral wholesaler, VX Fiber is committed to building and operating open-access full-fibre networks, information on – and business profiles for – a host of additional Service Providers’ is available on the LilaConnect website. Customers can contact the Service Providers directly if they choose to buy their services.

We’d just like to take a moment to thank Mikael Sandberg for providing such detailed and constructive responses to our interview questions. We look forward to seeing how VXF and Lila progress over the coming years.