The full fibre broadband arena in the UK is undeniably vibrant, boasting a thriving ecosystem with over 100 alternative network providers, better known as altnets, competing for their share of the market.
While this robust competition is undoubtedly a boon for consumers, it raises pertinent questions about the sustainability of this growth. Just how much more fibre can we realistically deliver, and is there a risk of oversaturating the market with providers?
This proliferation of altnets has ignited a fierce price war among providers, each vying to monetise their networks. This competition, while beneficial for consumers in terms of choice, also prompts us to contemplate whether we’re inching toward a price-driven consolidation within the industry.
Amidst this dynamic landscape, a challenge looms large. The industry’s rapid expansion is beginning to encounter financial constraints, and the necessary capital for expansion isn’t flowing as freely as it once did. This raises genuine concerns about how we can sustain our current pace of growth.
There’s a notable shift underway in the industry’s focus—from predominantly serving consumer premises to a burgeoning emphasis on business premises. This transition is brimming with potential, promising a brighter future for businesses, but it’s important to acknowledge that we’re still on a journey, with considerable ground to cover before business premises enjoy the full benefits of comprehensive full fibre connectivity.
As we navigate this intricate terrain, the clock ticks ever closer to the 2025 PSTN switch-off deadline. Current statistics reveal that just over 50 per cent of UK premises are now covered with full fibre broadband. The urgency of achieving full coverage is evident, and it’s an enormous task that lies before us.
Anticipated consolidation
The anticipated consolidation in the full fibre broadband industry is not a random occurrence but rather the result of several interwoven factors within the industry’s financial landscape.
Borrowing money has evolved into a costly endeavor, casting a shadow of uncertainty over many altnets. This financial constraint has placed significant pressure on their capacity to expand and upgrade their networks. As the cost of borrowing rises, the ability to secure the necessary capital becomes increasingly challenging, thus hindering their growth potential.
Adding to this financial complexity, numerous companies have found themselves falling short of their sales forecasts. This disparity between projected revenue and actual operational expenses has created a substantial financial challenge for these providers. As a result, the need to reassess their financial strategies and objectives becomes paramount.
The competitive nature of the market has also intensified the pressure on altnets. This heightened competition has given rise to a price squeeze on broadband products, further compounding the financial difficulties they face. The need to offer competitive pricing to attract and retain customers has become a double-edged sword, impacting on their bottom line.
Private equity and venture capitalists, who have invested heavily in the industry, are eager to recoup their investments and potentially exit the market with substantial returns. This desire to maximise their gains is a potent catalyst for the consolidation we anticipate. As these financial players seek profitable exit opportunities, their actions may reshape the industry landscape.
Altnets seeking rapid expansion as a quick fix to boost their footprint and sales growth are another significant driving force behind the impending consolidation. The allure of expanding swiftly to capture a larger market share has spurred these providers to explore consolidation as a strategic move to meet their ambitious objectives.
The impact of consolidation
As consolidation unfolds, altnets may lower prices to gain market share, benefiting cost-conscious consumers seeking more affordable broadband options, potentially reducing monthly bills.
While consolidation may reduce provider choices, many altnets supply services to aggregators, ensuring a seamless experience for consumers who may not notice significant changes in their broadband service. Aggregators bundle services from various providers, preserving choice for consumers.
Assuming consolidation enables continued network expansion, fibre-to-the-premises (FTTP) availability is poised to reach a larger population more rapidly. This is especially advantageous for businesses, particularly those in underserved areas, where high-speed, reliable broadband is crucial for operations.
Opportunities and challenges
Consolidation offers a significant opportunity to swiftly expand services to a broader population. As altnets expand through acquisition and consolidation, aggregators footprints naturally grow, extending services to a wider customer base.
Leveraging economies of scale, aggregators can offer more competitive pricing while maintaining margins. This benefits both the aggregators, the channel resellers, and the customers, as a larger customer base enables better supplier negotiations and operational efficiencies, resulting in cost savings being passed on to customers.
Navigating industry complexities can be daunting, but aggregators step in to offer a seamless solution. They handle the intricacies behind the scenes while channel resellers and customers enjoy improved pricing, enhanced scalability, and a hassle-free experience.
We can leverage industry changes to offer future-proof services and capture available margins before market saturation. With FTTP shaping the next few decades, this is an ideal moment to seize the potential. Let’s navigate this evolving landscape together, ensuring a bright future for connectivity.
This opinion piece appeared in our November 2023 print issue. You can read the magazine in full here.