by Outgoing BT boss Philip Jansen has a favorite mantra: “Build like Fury”.
Jansen has repeatedly used the phrase amid a mad rush to roll out full-fibre broadband across the UK. Boris Johnson fired the first gun on the panel with a promise to reach every home in the country by 2025.
The target not only spurred an investment boom at BT but also prompted the creation of many new challengers who emerged to build their own competing networks.
The goal of full coverage by mid-decade was always a stretch. The original commitment has been reduced to a target of 85pc, and the promise of full-fibre connections has been replaced by the grander term “gigabit able”.
Under current plans, full coverage – defined as 99pc of the UK – should be achieved by the end of the decade.
Now, however, the plans are in fresh doubt with a declining economic background. Soaring interest rates have fueled a financial crisis among debt-financed competitors, and inflationary price hikes have left many consumers wondering if they will be able to pay their bills.
According to the latest data from Think Broadband, 79pc of households now have access to gigabit-capable connections, meaning the UK is on track to reach its interim target of 85 PC coverage by 2025.
But there is less certainty about the later stages of the plan. The Government has pledged £5bn to help reach the latter part of the population, whose rural locations make it difficult and expensive to connect.
Many of these contracts have already been awarded to other providers – known as “alt-nets” – but a wave of business failures could threaten this goal.
Encouraged by low borrowing costs, alt-nets launched debt-financed efforts to connect British homes and compete with BT.
But it was not simple. Competition has made overbuilding – where several providers build networks in the same town or city – inevitable, which has hurt adoption. Costs are rising as inflation has also worsened.
Most damaging, however, is the recent rise in interest rates, which has raised the cost of servicing debt.
This drove Cityfibre’s losses to almost double to £210m last year, while Hyperoptic’s losses were increasing by 60pc. Both companies were forced to cut jobs.
Others, including London-based Community Fibre, have been forced to slow their build plans and focus instead on connecting customers to existing infrastructure.
The crisis has fueled predictions that only a handful of players will survive. Dana Tobak, chief executive of Hyperoptic, admitted that it is “inevitable that some will fail and some will succeed”.
Mike Fries, head of VMO2 parent company Liberty Global, has gone further, saying that eventually only VMO2 and BT will be left.
BT’s Jansen has said the former monopoly is “ready and waiting” to step in.
No doubt, the comments have ruffled feathers. One source complains that “the sole objective of the big incumbents is to undermine infrastructure competition”.
But it is more than talk. Ofcom is drawing up plans for a “provider of last resort” system, similar to that seen in the energy sector, to ensure that broadband services are not disrupted if providers start to collapse.
James Barford, an analyst at Enders Analysis, says alt-fills are under “a lot of pressure”, adding that consolidation is “widely expected”.
While Ofcom is understood to be drawing up contingency plans, it has said that these are not specific to any particular company.
Matthew Howett, founder and chief executive of Assembly Research, argues that one of the main objectives of alt-nets is to pressure Openreach to build its own network faster.
“That dynamic has already taken place, it’s happened… so I think when they light the fireworks the vast majority of Project Gigabit will happen,” he says.
Barford adds: “Government intervention is already needed to achieve full coverage and it is not clear whether we will achieve it by 2030 or soon after.”
Problems are not just for suppliers – consumers have also felt rising costs.
Telecoms companies raised bills by up to 15pc in April and further inflation-beating price rises are expected next year.
The consumer group estimates that telecoms providers will make almost half a billion pounds in 2024 from mid-contract price increases on mobile and broadband bills alone.
There is growing concern that this could affect the number of people taking it. New figures from Ofcom show that 7pc of UK adults do not have access to the internet at home, with a quarter of these people blaming high costs.
This increased to more than a third for the lowest socio-economic groups.
The issue of affordability is a key consideration for Ofcom, which is tasked with protecting consumers.
The regulator has opened investigations into inflation-linked price rises across the industry, as well as whether mobile and broadband firms are being fair about what they charge. The results are in the coming weeks.
“The broadband market is not growing as fast as you would expect, as fast as it has in the past, and the cost of living crisis probably has something to do with that,” says Barford.
However, he says the slowdown is also due to a surge in demand during the pandemic and says overall telecom prices are still affordable.
It’s not just a question of price, though. Broadband providers will also need to convince consumers of the benefits of full fiber broadband.
“Our research has shown that people don’t always understand the benefits of full fiber and don’t want to pay more for their broadband,” says Rocio Concha, director of policy and advocacy at Which.
“The Government should be mindful of this, along with other barriers to take-up, as it pushes ahead with gigabit-capable broadband across the country.”
As costs continue to rise, broadband builders risk not paying off their gambles.
A government spokesman insisted the full-fibre rollout was “on track”.
They added: “We are supporting providers of all sizes to roll out their networks widely, and we monitor the market closely to ensure that people across the UK can get the connectivity they need for years to come.”
