BT Does the Honourable Thing: GBP 1.5 Billion on Fibre for 10 Million UK Homes

| Jul 17, 2008 | Consumer Broadband Services - Europe | Competitive Intelligence Report

| Analyst: Ben Tudor

Current Perspective: Positive
Vendor Importance: Very High
Market Impact: Very High

Event Summary

July 15, 2008 – BT has announced plans to roll out FTTP and FTTC to up to 10 million homes in the UK by 2012, costing the firm GBP 1.5 billion. BT Wholesale will manage sales, and open the network to other service providers in the process. The rollout is subject to OFCOM changing certain regulations, something which the regulator appears ready to do under the correct circumstances.

Analytical Summary

• Current Perspective: Positive on BT’s announcement that it will implement fibre-based broadband services in the UK, reaching 10 million homes by 2012, as it lays out a clear roadmap for ISPs reliant on the firm’s wholesale business, and creates a positive environment in the UK for broadband service growth. ISPs are at risk of becoming bit pipes, as UK internet marketing has concentrated on speeds rather than services over the past eight years. By introducing speeds fast enough to deliver a slew of new services, including telepresence and videoconferencing, multiple HD streams and various other applications, BT will shift the emphasis to innovative services, rather than speed, the advertising of which has led to consumer disillusion.

• Vendor Importance: Very high to BT, as the company needs a direction to take after 21CN and ADSL2+ rollouts, and fibre puts it in a strong position in both the wholesale and retail areas. BT has done well from LLU, and realizes that a rising tide lifts all boats – that by creating high capacity broadband networks and allowing competitors to sell connections, it can profit too. This is a natural evolution of the organization's ADSL, ADSL2+ and 21CN projects. By plumping for Fibre To The Street Cabinet (FTTSC) and VDSL, BT is also keeping some capacity in reserve for a future potential provision of Fibre To The Home (FTTH) to large swathes of the country.

• Market Impact: Very high on the UK broadband market, as super-fast broadband will allow ISPs to escape the speed trap and offer services, and enable new services to grow, fostered by higher speeds, particularly upstream speeds. While other European countries rely on government – backed rollouts (Germany) or freeform local competition focusing only on areas of high population density (France), BT has taken the middle way between the two, harnessing the best of both scenarios. The firm is highly likely to gain a solid return on investment of at least 10%, while fostering goodwill with the regulator, local authorities and ISPs that resell its services. All that remains is the need to drive down costs – or raise value – for the end-user.

Recommended Competitor Actions

• Virgin Media should roll out EuroDOCSIS 3.0 with alacrity, and aim to build a good installed base as BT rolls out its fibre. Virgin Media should also consider making use of BT fibre once it is rolled out, and should resist any regulatory attempts to require it to open its network to rivals, as BT would favour.

• BT has said that the new technology is intended to shift consumer perceptions from speeds to services, something the UK badly needs. Service providers have created this problem themselves by advertising on speed, rather than trying to shift the focus on to services. ISPs, especially Tier 2 providers, should look to do two things; firstly, create those services if they do not offer them (or strike resale agreements) and prepare their customers for service rather than bandwidth delivery.

• Tiscali, which launched its own ADSL2+ product earlier this year, needs to maximize its investment as soon as possible; the company now has serious competition coming in the form of fibre and VDSL, and needs to get a return on its ADSL2+ investment as soon as practical.

• Rival ISPs and BT Openreach customers should establish whether BT’s fibre rollout will hit areas where they sell or plan to sell, and act accordingly. BT will roll out first in areas where there is a clear economic advantage to doing so, and noticeable demand for VDSL products; ISPs should be aware of this and plan accordingly.

• BSkyB and Carphone Warehouse cannot hope to compete with BT’s investment – but they do stand to gain from the rollout. Both firms should look to resell BT’s VDSL products as they become available; indeed, BSkyB should consider this as a way of delivering its content and services over broadband instead of Satellite.

Recommended End User / Customer Actions

• Consumers should sign up for ADSL2+ services as and when they become available rather than wait for fibre to arrive at their local street cabinets. While BT is investing around GBP 100 million this year in trials, it is likely that serious deployment is yet some way off. At the same time, consumers should consider waiting for the cost of DSL CPE to fall, as it has done with DSL modems.

• Consumers should be wary of attempts to lock them in to long broadband contracts of 12 months or more. The current trend is towards 18 – 24 month contracts, something customers would be wise to avoid in order to be able to take advantage of better competing offers as they emerge.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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