Industry Voices

Mapping the implications of a smaller AltNet pool

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Sylwia Kechiche, principal industry analyst at Ookla shares her advice for the UK’s AltNet community.

Until recently, alternative fibre network providers, known as AltNets, were seen as crucial in making ‘Gigabit Britain’ a reality and rolling out fast fibre to underserved areas of the country.

Now, widely reported headwinds indicate that the future for AltNets might not be so bright.

 According to a report in the Financial Times, most UK AltNets have failed to turn a steady profit, and the current climate of squeezed investment and increased interest rates offers limited space for such business models. A spate of consolidation feels inevitable in a crowded market populated by over 100 AltNets.

That’s why it’s the right time to consider what’s next for the UK’s fixed broadband market.

 It’s important for those few AltNets with the capacity to continue scaling nationwide to prioritise the delivery of good connectivity, and to utilise learnings from the impressively fast rise of AltNets to date.

AltNets burst onto the scene as a force for good and can remain so.

The long shadow of UK AltNets

The UK AltNet story is one of funding. Back in 2021, the UK Government launched a £5 billion project to connect more than one million hard to reach homes and businesses to gigabit broadband.

Private sector funding for AltNet rollouts stretched even further. Fast forward to today and according to Ofcom ‘Other’ ISPs, or AltNets, provide 14% of the UK’s broadband connections.

Deep pocketed investors have been crucial to the speedy build-out of AltNet networks, but it’s government funding that incentivises AltNets to scale networks in underserved, rural areas. Such government support is still forthcoming, despite generosity from private equity investors lately becoming harder to come by.

For example, CityFibre was awarded £318 million in government funding in July to connect rural parts of southern and eastern England.

We already know about the economic headwinds behind lessened investor appetite, but what is discussed less is the inherently weak economic viability of some AltNets.

AltNets to date have built on top of rival networks in concentrated cities in pursuit of boosting the number of ‘homes passed’ by their network. According to the FTTH Council, this has resulted in total homes passed with Fibre to the Home (FTTH) and Fibre to the Building (FTTB) in the UK jumping year-on-year from 8.2 million in 2021 (28% coverage) to 12.4 million in September 2022 (42% coverage).

However, there is a huge gap between fibre coverage and adoption. Despite all the progress on rollouts, the number of FTTH and FTTB subscribers in the UK reached a mere 3.3 million, translating into a 27% take up rate. Far, below the EU average of 52.8%.

This is food for thought for the AltNets with the economic viability to still be standing after industry consolidation. ‘Homes passed’ must start feeding through into actual connections to ensure a return on their infrastructure investments.

Positioning for survival

The UK’s fixed broadband performance still lags internationally, ranking 55th globally for median fixed broadband speeds, according to the latest iteration of Ookla’s Speedtest Global Index.

But AltNets are at the vanguard of pushing speeds upwards. According to Ookla data they delivered top median download speeds in London, Glasgow, Liverpool, Manchester and several counties across the country as recently as October 2022.

However, consumers aren't always aware that AltNets can often offer superior speeds to their current provider.

Due to marketing, many in the UK believe they’re on a gigabit broadband package when in reality, their connection doesn't match up. This suggests there’s still room for AltNets to articulate the broader benefits of switching to their network, beyond competitive pricing.

The aforementioned wave of consolidation holds potential upsides for players in the fixed broadband market, but only where consolidation makes sense strategically.

An initially attractive merger or acquisition opportunity could easily end up problematic on closer inspection. For example, the overbuilding and subsequent network overlaps in metropolitan areas could equate to a prospective merger offering only minimal coverage gains that aren’t worth pursuing,

Keeping consumer interests front of mind

ISPs also need to factor in the continued expansion of broadband access and the requirement to deliver positive customer experiences when considering consolidation.

A purchased company’s existing customer base would surely notice any degradation in service quality, and the purchasing ISP would also be required to fulfil commitments such as the expansion of fibre coverage, despite the business changing hands.

ISPs should consider scalable solutions that can use network performance metrics to guide the prioritisation of network improvements and troubleshooting as a vital tool in their arsenal.

Companies must also keep up with current customer use cases for connectivity. Latency is the new frontier of customer experience and expectations, and ISPs need to prioritise assuring low latency in 2023, though they’ll need the right performance data to do this.

Consolidation within the fixed broadband market isn’t inherently bad.

The economic conditions that allowed many AltNets to spring up have changed, so naturally the market needs to change with it. But we must consider potential disruption.

The UK Government has kept its gigabit ambitions the same, and customers continue to expect positive connectivity experiences.

Despite market changes, ISPs need to focus on delivering these experiences to excel. Utilising the data to get an accurate picture of network performance, quality and geographical coverage will be key.

AltNets that do this successfully are best positioned to outrival and grow their customer base with a more reliable proposition, as well as cheaper, than what competitors can offer.