Focus on Cost Savings Impacts Openreach’s UK Full Fibre Build UPDATE2
Openreach (BT) has reportedly informed its suppliers that their need to curb costs and get more “bang for its buck” will impact the UK rollout of their gigabit-capable Fibre-to-the-Premises (FTTP) broadband ISP network, which will “include an element of cancellation or suspension” of some work and have a “financial impact“.
The rollout, which is expected to cost “up to” £15bn and recently reached 9 million UK premises (inc. 2.8m in the hardest to reach rural areas), is currently running at a build rate of c. 62,000 premises per week and this is predicted to peak at c.75,000 premises at some point in the near future (i.e. up to 4 million premises per year, which compares with the 1.9 million added in 2020/21).
However, the CEO of BT Group, Philip Jansen, recently warned (here) that high inflation and increased energy prices were “pushing us hard” (e.g. their energy bill went up by £200m this year) and as a result the group needed to take additional action on their costs to “maintain the cash flow needed to support our network investments.” As a result, they increased their cost savings target from £2.5bn to £3.0bn by the end of FY25.
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According to the FT (paywall), Openreach has now informed suppliers that it will instead build its full fibre network “narrower and deeper” and “tighten the timing of investment” to a just-in-time approach (i.e. not committing capital to projects further than 6 months out). The focus will thus switch to completing areas that are already partially finished.
The operator has a further 6m homes (on top of the completed 9m) that are currently “partially built” and the changes will thus mainly be reflected in a suspension of work on engineering surveys and estimates for future work beyond the first 15 million premises. Despite this, Openreach’s CEO, Clive Selley, is adamant that this will not affect their target of reaching 25 million premises by the end of 2026. Time will tell.
We suspect this means there will also be fewer rollout announcements in the short-term, at least until they’ve made more progress on completing the first 15 million premises. The move could conceivably benefit some of Openreach’s rivals in the alternative network (AltNet) space, albeit somewhat temporarily.
But AltNets also have their own cost challenges to consider, particularly with investors starting to test whether their funding is delivering the necessary take-up in early build areas. Operators that struggle to deliver on this may face a tightening of the purse strings, which could slow their builds in order to focus on increasing adoption, and if that fails the alternative is often consolidation. We expect a fair bit of the latter.
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UPDATE 11:09am
Openreach has issued a general comment on the FT piece, which doesn’t add much, but does highlight that their pace of build is continuing to increase. The above change is all about finding a more cost-efficient way to deliver on their target, without compromising on pace and quality.
An Openreach spokesperson said:
“We expect to build ultrafast full fibre broadband to more homes and businesses next year, not fewer, so we’re speeding up not slowing down.
As our recent results show, we’re investing £200m more than we expected to this year on the build, and orders for Full Fibre services are at record levels. In fact, nine million homes and businesses can already order our Full Fibre service from a large range of service providers, so it makes sense for us to put more resources into upgrading customers and fulfilling orders as quickly and smoothly as possible. We’ve also partially built the new network to a further six million premises, so we’re focussed on completing that work.”
By the sounds of things, Openreach will primarily be focusing on their build in existing exchange areas until around early Spring 2023, but after that they’ll be back to targeting new exchange areas again.
UPDATE 24th Nov 2022
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Clive Selley has written a blog post to help further underline the fact that they still expect to hit their build targets. We’ll paste an extract from that below.
Clive Selley said:
“It’s fair to say we’ve got a bit ahead of ourselves on what we call “exchange enablement” – putting new equipment into our exchange buildings before we build out to homes and businesses.
That means we’ve ‘enabled’ or partially built the new network to around half of the homes in the UK already.
As a result, we’re going to pause starting some new jobs – like surveying work in other locations – for the rest of this year and we’re going to focus on completing work that’s already started.
It’s easy to misinterpret all this, but it’s about having financial discipline and getting a better bang for our buck … So don’t expect us to slow down – we’re building and connecting like fury.”
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
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This is bad news for the altnets. I bet there are some very very nervous investors out there.
Please elaborate?
Basically build costs are up and Openreach are feeling it. But theyre paying less cause of how big they are, so how do the alt-nets cope? They’ll be paying way more than they planned, and right when interest rates on their borrowing is through the roof. Openreach can probably weather it, but some of these alt-nets had wildly ambitious plans with big backers who expect fast build and even faster adoption. Meanwhile Openreach can switch to converting orders, which means higher margins and more market share.
Not just interest rates but also business tax that this muppet government is hiking
BT/Openreach likely order stock in very large quantities, with large stock holdings to draw on during rollout. Makes me wonder if suppliers have been pulling the inflation card to up prices, so BT are hitting back by reducing new orders and reducing their stock reservoir during this “temporary inflationary” period. If it isn’t going to affect the 25 million target by the end of 2026, Openreach must be pretty confident they can operate a just in time operating model.
Hard to say if Altnets will benefit, my guess is it will depend on potential customers collective desire to switch from FTTC, to FTTP from an Altnet. Posters and readers on here are engaged in the subject, but most aren’t and will stick with a service they’re happy with. We don’t currently have the FTTP option in our location, but we haven’t got any issues with our FTTC service, so we’ll only switch when an FTTP option is available and will likely go for the slowest cheapest speed, as we have no current issues in respect of speed and latency.
The problem with the just-in-time model is that stock isn’t readily available from suppliers. In some cases it can take 9 months for stuff to arrive such is the demand for products like CBTs in particular. Stocking up supplies is a necessity if builds are not be impacted.
I think to be fair if you are openreach and supply projections and contractual commitments you’ll find that it is.
Out of reach could have saved money by not coming here, we have an altnet, so no need for openreach for the time being, but as soon as the alt net started to build Opoenreach was interested.
Now i have two choices of FTTP since Out of reach network is now available to me,
traying to create conspiracy where there is not one
Openreach build plans are about a year from moment of entry into programme to liven of service (also dependant on what programme that work has been completed under)- so to suggest that an Altnet is building and then Openreach suddenly rocks up is disingenuous and completely incorrect and proves you have little understanding around the complex nature of an FTTP build and now it gets built
To be fair Fastman, there have been various examples in the past of rural communities where Openreach have only started to build FTTP after an altnet made its own plans public or started building, often doing a dramatic U-turn in the process (e.g. calling it commercially unviable one day, then reversing that the next).
The situation today is obviously different due to the scale of the build, but in the past it’s something that Openreach has faced criticism over. I wrote about multiple examples some years ago, and some government/ofcom reports also recognised these concerns.
On the flip side, from the consumers’ perspective, having a choice of two FTTP networks should never be a reason to complain 🙂 .
Openreach’s plan is the most vague thing ever “can be built anytime from 2022-2026”
It is a hard fact that they’ve suddenly prioritized areas where altnets deployed. They should focus on deploying where they didn’t lay a useable duct rather than trying to overbuild on altnets
@Fastman: “traying to create conspiracy where there is not one”
You are welcome to disagree with other posters, but why do you always have to resort to an offensive language here? It is common knowledge that Openreach changes rollout plans all the time to compete with altnets.
It’s to be expected that openreach, or any other operator, would change their plans if another operator builds in a new area. It’s the nature of competition and it works both ways. If they stand to loose hundreds or thousands of customers to an alnet it will significantly change the business case for a given area. Its not conspiracy , its just business.
When one company is building to 25 million homes, there’s going to be overbuild. What don’t people get about this?! It was all argued about long before the rules were drawn up. The alternative is local monopolies.
They were going to build to you anyway. They build before the altnet has a chance to establish they retain customers and make more money.
Building to you when they did maximises revenue. Ignoring you and letting the altnet take their customers loses them money.
@Fastman: You’ve been making this logic for quite some time including towards myself. The truth is Openreach are much more likely to show interest in an area with an altnet than in areas without!
This is why we are seeing so many overbuilds, while others have been completely neglected. Areas that have been left behind with no Altnets tend to have no plan for Openreach FTTP as there’s no competition. Openreach are more likely to target areas that have an Altnet. I’m going to have to observe and see if Community Fibre goes live in my building, whether Openreach will show interest.
But what I can say is that previously in postcodes that have shown no plan for Openreach FTTP happen to now show plans for FTTP that appear to coincide with multiple Altnet services like Hyperoptic and Community Fibre going live!
FYI, Fibre First programme was announced by Openreach thanks to the competition from the Altnet providers. If it wasn’t for the Altnets, Openreach would’ve continued milking cash using existing FTTC network for many more years to come!
Openreach know they are losing FTTC customers and it would make perfect sense that they are likely to upgrade those areas with FTTP if all the customers from that area upgraded to the Altnet. Those FTTC green cabinets will just be pointlessly sitting around occupying street corners and pavements for no good use (more like backups) unless those Altnet FTTP providers let us down, which is unlikely.
You post the fans trying every time Fastman and it just isn’t true.
Openreach do actively target areas that Alt-Nets are building in.
An Alt-Net rolling out to an area makes it significantly more likely that Openreach will roll out to that same area, and sooner rather than later.
It makes good business sense for them to do just that.
There is very little increase in revenue for Openreach by upgrading areas from FTTC to FTTP in areas where they are the only provider. There’s a small increase in profits for the relatively small number of homes that will take higher speed tiers.
There is a large increase in revenue clawing back customers who have left to other providers. If Openreach are quick enough to deploy then they can save losing customers in the 1st place.
Time and again we see Openreach pick areas recently announced by an Alt-Net.
They did exactly that in my area too…
Openreach had absolutely zero FTTP near me.
Virgin came along and provided blanket coverage of every local town around here and within kings of that build starting Openreach came along and rolled out FTTP to every property built in the last 30 years under their RNS programme (retro new sites).
You say things as such a matter of fact with an arrogance score of over 9000.
The reality is much of what you write is just nonsense.
Fans trying? That’s some auto correct.
*Same thing.
Still waiting for an edit button.
Could be a smart move. A rebalancing of focus on selling and installing what you have got whilst competitors catch up on coverage with higher build costs.
Is this good news or bad news for the Cuckoo Oak area for openreach full fibre? I guess more bad news.
Openreach haven’t even put my town on a future plan yet so I guess there is even less hope for me. Still waiting on one of the altnets to start taking orders – been building for 6~9 months and the availability date is constantly pushed back.
ALTNETS WILL START TO FADE AWAY SOONER. WE STAND NO CHANCE OF FUTURE FULL FIBRE NOW. OPENREACH BIGGEST FARCE
You may not, I’m waiting on CityFibre to enable the third full fibre network here. Might even get Virgin Media building if there’s room in the chambers.
You’ll have at least VM XGSPON.
I’m not complaining, but I genuinely don’t understand how they think focusing on in-fill will save them money. I thought they did the easy and cheaper homes first. Which left the trickier, more expensive homes for later in-fill.
BT seem to prioritize areas once an Al
BT seems to prioritize areas once an #n alt net moves in, Do they wait for an alt net to move in. Do they a=wait for them to unblock the ducts for them or are the costs split somehow ?