Over the last decade, the speed, coverage and take up of broadband services in the UK has changed demonstrably. Currently, the UK heads the EU’s five largest economies for super fast broadband availability and use as well as average speeds, helping the UK to become one of the leading digital nations in the world.
This transformation has been enabled by major investment across the industry. Openreach is investing £12bn in its network and Communication Providers (CPs) have also invested heavily to develop and market services.
The UK’s broadband infrastructure is a critical national asset. We rely on it to deliver a broad range of applications, from communications and entertainment, to public services such as education and healthcare. It is also crucial to the competitiveness of businesses large and small.
With that in mind, it is vital to consider whether there is a viable commercial case to ‘future proof’ the Openreach network by making a large-scale investment in Fibre To The Premises (FTTP).
FTTP networks are more stable and reliable, with customers experiencing faster, more predictable speeds and fewer faults. A scale rollout of FTTP will support much higher ultrafast speeds for download and upload, while also enabling a much simpler service management environment for CPs.
With the potential benefits being significant and far-reaching it will be vital to get a commercial investment case to work, requiring industry wide changes and collaboration.
So what are the deployment options for FTTP?
Openreach is consulting on two options, overlay and cutover. Both will have benefits but the cutover option maximises the opportunity for a commercial business case to work. Both options, however, will have a downside.
With the overlay method, Openreach builds an FTTP platform. End users would then choose whether or not to connect, but it is unlikely that CPs would underpin investment.
Using cutover, Openreach builds a FTTP platform which all end users are automatically migrated to.
The benefits of cutover include:
- Everyone benefits from the new platform as soon as it is deployed
- Operational cost savings are maximised for Openreach and CPs
- Maximises the set of customers on the new platform from whom costs can be recovered.
- Disrupts existing industry business models
- Disrupts end customers (parallels exist with utilities)
- Requires regulatory change and government support to make it work
- Requires the migration of most, possibly all, legacy services.
Compare this to overlay which worked with fibre to the cabinet (FTTC):
- Relatively modest build cost where Openreach/BT are prepared to accept the risk
- Cost saving not part of the case so mass adoption isn’t needed
- Costs are of an order of magnitude higher
- Willingness to pay required increment for speeds isn’t there
- Doesn’t unlock cost saving for Openreach and CPs
Any strategy should consider three key aspects. The economic case, commitment and co-investment and the role of Government and Ofcom.
The economic case must reflect benefit across the industry. A combination of cost savings, market share and higher pricing will be needed to defray the investment costs.
The sources of benefit for end customers will be the provision of a better service (fewer faults, stable speeds, fast upgrades/switching and ultrafast speeds. This in turn will provide CPs and Openreach with incremental revenue per line alongside operational savings and platform competitiveness. A target incremental benefit of £7 per line, made up from a combination of savings and income, will be needed (indicative number for ‘cutover’ scenario).
Commitment & Co-investment
Co-investment can take a number of different forms, but should help to spread risk across industry players, making commercial investment easier. This can be split into two areas, price/volume commitments, asset sharing and reciprocal build.
In practice, this would mean that CPs make a commitment to purchase a given volume at a given, whilst Openreach commit to making it available at a given price. This will share risk across retail and infrastructure layers.
Secondly, two or more infrastructure providers agree to share assets to reduce build costs or agree a programme of reciprocal build. Both parties build and own separate networks using the assets.
Some observers have expressed concern about the possible risk to equivalence associated with this type of approach.
Government & Ofcom
There can be no doubt that support from Government and Ofcom will likely be required on a number of dimensions to support FTTP deployment, those being:
- Regulatory framework that encourages infrastructure investment over multiple charge control cycles
- Support for a cutover approach to FTTP deployment
- An approach to battery back-up which gives customers an option to pay for this if they choose to do so
- Support to minimise build costs and maximise build rates. For example;
- Traffic management and parking charges/fines
- Cumulo rates for infrastructure providers
- Aggregation of public benefits and consideration as to how these can be reflected in our business case e.g. spectrum release associated with DTT switch-off.
Further detailed discussion between communications industry stakeholders will be vital to forging a path towards FTTP deployment.
The initial phase of the consultation has now been completed but Openreach plan further engagement with industry during the rest of this year and through 2018. Union Street will report further updates once they occur.