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Gigaclear Interview – The UK Challenges of Building Rural Full Fibre

Saturday, October 16th, 2021 (12:01 am) - Score 5,856

5. The R100 situation wasn’t the only difficult one that Gigaclear has faced over the past few years. Shortly after Infracapital acquired the company, in 2018, it became clear to the new owners that there were some historic problems, which seemed big enough to have cost Gigaclear their Devon and Somerset [CDS] contract (September 2019).

The CDS team identified several “fundamental issues” that had contributed to significant delays, such as a lack of operational capacity, poor decision making, slow deployment by contractors, a lack of detailed planning and a failure to redesign the build methodology.

Can you give us Gigaclear’s side of this story and tell us what you’ve done to put the wider rollout back on track since then (the latest rollout pace does appear to be much improved)?

James’ Answer:

Our experience with CDS was an important reflection point for us. The company was relatively young at the time of securing the contracts and was still operating exclusively from its Abingdon based HQ, and it was getting to the point where that wasn’t the most efficient way of working.

Moving to a regionalised build programme is one of the core lessons we took from our CDS experience, and it has been a key driver of the acceleration of our build rate since then, which now runs at c400% of what it was during that time. We are also continuing our own commercial investment in the area.

NOTE: Since writting this article Gigaclear’s rollout has suffered some new delays in Herefordshire (here) and Essex (here).

6. 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. But it also softened the initial coverage target to a “minimum” of 85% 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?

James’ Answer:

As you would expect from a rural network operator with a history of securing and delivering BDUK state aid contracts, we take an active interest in the development of Project Gigabit. It is undeniable that there are areas of the country that simply cannot receive gigabit capable connectivity without the assistance of state aid and Government should be applauded for identifying that and committing funds to address it.

With that said, the devil is in the detail with these contracts. The works involved in these programmes will take years to deliver, so there needs to be a balance of risk between the contracting parties and flexibility within the terms to adapt to a changing environment. They also need to deliver value to the taxpayer yet still attract a competitive tender process. Getting that balance of priorities right will be critical to the success of the programme.

7. Two of the biggest challenges faced by all operators during 2020, and into the first half of 2021, have 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 work force (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?

James’ Answer:

During the first lockdown, the most significant impact was on our labour force. Scheduling works of any kind became increasingly difficult, as our members of staff and of our contractors could unexpectedly be unavailable because of self-isolation. We also had to quickly change the way we worked to make sure our people were safe and operating in accordance with the new rules.

Whilst much of our workforce were identified as ‘key workers’ and our network build and repair activity was permitted to continue, there was also a lack of consistency in implementing these new rules. For example, some of the local Highways Authorities we work with initially wanted to cancel our planned works, whilst others wanted to accelerate them as demand on the road network was reduced.

Despite these challenges, throughout the lockdown phases we continued to extend our network to new areas that needed improved connectivity then more than ever. We also didn’t require any use of the government’s furlough programme.

As for Brexit, the transition arrangement and subsequent Free Trade Agreement helped to ease many of our initial concerns, particularly regarding the supply chain of critical network hardware. With that said, the reduced labour pool for network build roles is starting to drive supply side inflationary pressure on our build costs. To address that, we need to rise to the challenge of training and skilling our domestic labour force as an industry.

8. 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)?

James’ Answer:

The WFTMR signalled a significant shift in how Ofcom approach our market. Historically, Ofcom has largely concerned itself with protecting retail level competition by pursuing a pricing glide path that drives down Openreach’s wholesale charges. In the WFTMR Ofcom altered that approach and consciously sought to cultivate competition and investment at a network level. That shift in approach, and the way it influenced how Ofcom constructed their proposed remedies, has certainly encouraged investors.

We also welcome Ofcom moving away from its early WFTMR proposal that would have seen falling copper pricing in rural areas where Openreach doesn’t deliver FTTP. That, in our eyes, would have driven down the pricing of a substitutional product to FTTP. In turn, that would have then dampened consumer demand for FTTP and consequently driven value out of the competitor FTTP investment case for rural areas.

With that said, we are extremely disappointed by Ofcom’s decision to approve Openreach’s Equinox discounts. In their eventual WFTMR decision, Ofcom moved away from considering falling copper pricing in rural areas, largely because this could damage the business case for other operators to deliver full fibre in Area 3. Yet in its Equinox decision, Ofcom does not consider the impact to competition in Area 3 as it believes that these areas are unlikely to sustain competition to Openreach. That places Ofcom’s position in direct contradiction to its WFTMR decision and BDUK’s Project Gigabit, which is seeking to encourage a competitive tender process for large state aid interventions across Area 3. This contradiction between the Government’s ambitions and Ofcom’s position creates multiple policy issues that risk slowing rural fibre rollout and we are still considering further steps regarding our response to Ofcom’s Equinox decision.

9. Earlier this year Ofcom 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?

James’ Answer:

Given the proliferation of new FTTP networks and, consequently, an expansion in consumer choice, it makes sense to make it easier for customers to take advantage of the benefits these new entrants bring. At the moment, if you want to move from an ISP operating over the Openreach network, to an ISP using Gigaclear or other altnet infrastructure, the process will largely be driven by the customer trying to manually coordinate the ceasing of their old service and the start of their new one. That often leaves the customer with a period of no service at all and having to expend considerable time and resource in managing both sides of the switch. It is then easy to see why some customers will be deterred from making the switch to other networks. That’s why we support Ofcom’s proposed ‘one touch’ migration model as it simplifies the process and minimises the touch points required to complete the switch.

This isn’t just a positive outcome for customers in that is makes it easier for them to access better connectivity, but it also drives more effective competition across our industry by diminishing the ability of larger established operators to make it difficult for their customers to move service provider.

10. 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?

James’ Answer:

Our network already enables our customers to add OTT [Over The Top] VoIP services, which a number of our wholesale partners offer. Our own retail arm is also looking at which voice services we should supply direct to customers ourselves.

11. At the time of writing, there are around 70-80 alternative network providers that are building gigabit-capable fibre networks for consumers. 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?

James’ Answer:

If we look back at other similar markets, like the cable industry, it’s natural to expect that the ‘heating up’ of the market through new entrants and new sources of capital won’t last forever, and that consolidation is likely at some point. Whilst some areas of the market may well be able to sustain multiple gigabit capable networks, that is less likely in rural areas.

If consolidation does then occur, we think Gigaclear is well placed to benefit from that process. After Openreach, we are the largest rural FTTP network and the most successful operator in securing and delivering BDUK state aid contracts, and our build rate continues to accelerate… which is no mean feat considering the terrain of some of the areas where we are building!

12. 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 can do you think should be done to help communicate and simplify the market for consumers?

James’ Answer:

You’re right, some of the terminology in our industry can be baffling and plenty of consumers don’t know, nor care to know, the technical difference between FTTC and FTTP, let alone the differences between network operators and their unique service offerings. Whilst the market will play a large part in finding a solution to this, an agreed standard of industry terminology might be helpful.

We are then particularly interested in the recent report from the ‘Gigabit Take Up Advisory Group’ (GigaTAG) and their recommendation that Ofcom and the broadband industry work together to develop clear and common terminology. We look forward to playing an active role in that work.

13. 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 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?

James’ Answer:

Overbuild raises different policy questions depending on the market in question. In areas that can sustain multi-network competition, there is a question of whether the disruption caused by multiple operators building in the same communities and extending the payback periods of their respective investments outweighs the benefits of increased consumer choice.

In rural areas, however, the commercial stakes of overbuild are much higher. In areas that can sustain only one scale gigabit capable network operator, overbuild of two gigabit capable networks can restrain an operator’s ability to recover their cost of capital. This scenario could even be leveraged by larger network operators to purposefully overbuild or ‘cherry-pick’ in a challenger operator’s rural footprint; the larger operator then absorbs the longer payback risk through cross-subsidising across its network footprint, in the knowledge that the new challenger cannot as readily do the same. This risk leads to what the FTIR identified as the ‘hold up problem’; where areas that can support only one gigabit capable network will suffer from operators holding off their investments due to strategic uncertainties.

Across both policy questions, transparency of operators’ build plans could be part of the solution. This would allow all relevant parties to allocate investment more efficiently. Of course, such a process could be easily gamed by larger operators to undermine competition, so it may well be that a regulated process is required.

14. 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 (here).

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?

James’ Answer:

There is an intuitive logic to making it easier for ISPs to navigate an increasingly fragmented market at the network level. Integrating with a new network infrastructure is complex and resource intensive, so creating a platform that avoids that process being required each time an ISP wants to operate over a new network would open up new infrastructure to many more potential customers.

With that said, the practicalities of this are complex. It’s not clear how the costs of a CWP would be shared and some altnets already have such platforms of their own, which may reduce their incentive to contribute to this scheme. It also isn’t clear how such a model would adapt if the market does consolidate in the future.

We’d just like to thank James for taking time out from his day-to-day work to answer our questions in such an open and informative way.

Leave a Comment
14 Responses
  1. anon67884 says:

    Hello James / the Gigaclear team,

    Please bring your FTTP network to Worcestershire, many parts of the county still have no plans for a FTTP network! Your main threat would be Openreach in 2026, we aren’t exactly being prioritised in Worcs.

    I know that Worcester County Council weren’t helpful when this was discussed in 2017 (I believe the local Highways Authority were unwilling to discuss working around requirements to close roads in some areas, while work was completed), but please keep trying, lots of people here still have slow and unreliable connections.

  2. The Facts says:

    A rubbish response to the CDS question. They were incompetent, poor management. They promised more than they could deliver.

    1. anon67884 says:

      Does this comment have any thought behind it, or is it just angry venting?

    2. The Facts says:

      What is incorrect? People still waiting for decent speeds.

    3. Fastman says:

      anon cant answer the first (but there no longer plucky little altnet fighting against big nasty openreach Gigaclear.there funded by massive investment corporations and when you win BDUK contracts now you have stand up , do what you need to do and meet the milestones (BDUK milestones are relentless and you dont get paid until you meet the milestones (so you cant complain that it was hard and difficult – because that a given) – so 2nd probably and 3 is clearly correct) –

    4. NGA for all says:

      @fastman Gigaclear only ever got a whiff as BD Group blocked Openreach as the available BT capital got diverted to Sport as the expense of a more meaningful effort on the rural upgrades – late, sub-optimal solutions (FTTC-cure), no sight of BT capital, all of which need to be unpicked.

      This early for sale sign is the first call for help, despite the money available and should be a warning to Boris Gigagit proposals to overbuild what has already been subsidised at the expense of completing rural. The demand for > 100mbps services by those on 30-80MBps services is not proven by any means.

    5. A_Builder says:

      I would tend to agree with @fastman.

      Gigaclear were, initially, a plucky upstart trying to do what B4RN did but commercially.

      Now they have masses of cash behind them the same excuses don’t really wash.

      The general business model, wether that be build timelines or ROI, doesn’t seem to quite work hence the pretty clear retrenchment to larger settlements.

      Now, I can see how it makes sense to cover off a settlement and get subscribers onboard as this first mover advantage makes sense. I can also see that it then makes sense to build out from the settlement more slowly as nobody else will go near once the core settlement is covered off. But that is not how BDUK funding works: the package has to be done to claim it.

  3. Paul says:

    (Scotland R100 Legal)

    Nothing like a good bit of British Business Modelling.

    Bid to win the contract, then legally squabble in the snails pace of courts for years over who is doing this-that-and-the-other, meanwhile another competent provider walks right in and does it for them in half the time for half the cost of their legal bill.

    All this causes the British customer to lose out.

    Don’t Worry, it’s all part of “Build Backwards Britain” project right, keep us in the dark ages.

  4. AnotherTim says:

    If Gigaclear is to pass 500,000 properties by 2023, and have passed 240,000 in the past 10 years, how are they going to increase build rates to build more in the next 2 years as they have managed in the past 10 years?
    Is the answer to concentrate more on commercial builds in towns and larger villages and less on rural areas (that seems to be happening, speaking as someone in a rural area waiting for Gigaclear, watching the nearby towns and villages being prioritised).

    1. Jonathan says:

      The failure of other BDUK contracts won by Gigaclear would have been ample grounds to rule them out for R100. Noting that the R100 started before those contracts failed. You can also in exceptional circumstances change the rules, and Gigaclear’s incompetent failure in other contracts would be those grounds. If they can’t manage to build in the south west of England which compared to the highlands of Scotland is frankly basically urban the risk of failure of a Lot1 contract would justifiably be marked as too high to award.

      Also while there might have been a mistake in the scoring process correcting the mistake might not have put them ahead of Openreach. The fact that even after going to court Gigaclear are not building Lot1 shows they are in fact a bunch of bad losers and the reason he dodged the question is because he knows that to be the case. There name is justifiably mud in Scotland now.

  5. AnotherTim says:

    Is there anything Gigaclear can do to improve the updates it gives about their build progress?
    I’ve been registered for updates for 5 years, and I have received one update – inviting me to an online community meeting last December where we were told our cabinet would go live early Q3 2021. Since then we have had lots of traffic disruption, and our road verges messed up, but no updates, and no sign of anything going live. Much of the build area hasn’t been started yet despite the whole area being due for completion this quarter.
    Asking Gigaclear or Fastershire about progress produces various excuses (most of which I don’t believe at all), and promises of progress next month (the same as for the past 5 years).

  6. DG says:

    Whatever you do when Gigaclear passes your property make sure they put the little ground pot in place, otherwise you have to fight with them for months whilst they argue who is to blame. (GL54 region)

    Secondly I am still waiting on a reply relating to them setting bridge mode for me after raising multiple tickets during the middle of 2020 … I have a feeling it will never materialise because I need to be onsite when they do and they never get me a date / time.

  7. HR2res says:

    I live in “hard-to-fttp” rural south Herefordshire. About 3 years ago now, Gigaclear, having had some success with earlier Phase 2 contracts in the Fastershire area, bid for and won the Fastershire Phase 3 contract for rollout of fttp in our area. The impression we locals now get is that they bid for that contract without really knowing the “lie of our land”, and now it is looking increasingly likely they are retreating from their contracted undertaking because it is too difficult/not economic (but that was the reason the contract was being offered!!). We will know for certain in a few more weeks, once their “review” is completed. But their direction of travel seems pretty clear.

    We didn’t expect it (i.e. decent broadband, better than 0.5-2 Mbps down/0.1-0.6 Mbps up) “yesterday” or “today”, or even “tomorrow”. Sometime “next week” was always acceptable. However, we’ve been sold the pup that is false hope for the best part of a decade now (and Fastershire have some hard questions to answer about this fiasco too, especially when the Gigaclear/Connecting Devon and Somerset issue surfaced at about the time of the Phase 3 contract award). If it hadn’t been for this peddled false hope, then we, as a wider community, would likely have taken the tack of B4RN, or more locally by Herefordshire Community Networks, and have been further advanced than Gigaclear were before they bid for their Phase 2 contracts.

    My current thoughts on Gigaclear? Well, in the unlikely event that after their review they decide to honour their Phase 3 fttp contract commitments then I’m likely to be slightly negative of neutral (after all, notwithstanding covid excuses, it’s 3 years since the contract was awarded).

    However, my best guess is that following the review they can best be summed up by rearranging “this” to form a well-known expletive.

  8. Andy says:

    There’s 200m of missing conduit in our local install and we’ve been waiting for Gigaclear to finish lay it for six months (they’ve had 3 road closure notices in that time)

    The conduit behind the house that it’s due to line up with was laid 18 months ago

    Now with Complete Utilities going bust who knows when we’ll get fibre

    With such chaotic build processes it’s no wonder they’re struggling… once the conduit is in the ground the priority should be to lay fibre and lite it so that they can earn revenue from it

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