The broadband revolution may not be televised (or streamed)
By World Infrastructure Journal-
The explosion in the number of alternative telecommunications networks, or ‘alt-nets,’ may initially seem to be indicative of a healthy market response to the growing demand for faster, more competitively priced, telecom connections from consumers. However, due to a lack of regulation and oversight, that response to demand has created an investment bubble that threatens to jeopardise the UK’s telecoms infrastructure.
The ongoing installation of fibre cables under London by BAI Communication signals the arrival of a new age in digital connectivity. The new telecommunications infrastructure, which is being housed in a network of tunnels formerly used to supply power to trams, will allow passengers on the London Underground to access the internet as they travel – and will also drastically improve connection speeds for already connected businesses and individuals. This installation, however, also signals the arrival of alternative networks (or alt-nets) and a new era for the UK telecommunications market.
Given that many experts estimate that consumer demand for ‘gigabit speed’ internet will skyrocket in the coming years – and that the faster connection will come at an accordingly higher cost – it is easy to see why over 50 alt-nets, with financial backings in the billions, have emerged seemingly out of the woodwork. And, in many ways, the emergence of smaller companies would seem to be a positive. Stoking competition in what has previously been a market dominated by a few big names, these new telecoms providers will force large groups like Virgin Media and BT to improve their pricing option and rationalise their internal infrastructure. Moreover, by targeting customers in rural and underserved areas, or by reaching out to partner with other telecoms companies, alt-nets have quickened the pace of broadband’s arrival while also expanding the scope of its rollout. The issue, however, is that in their haste to make a land grab in the rapidly expanding ultrafast broadband market, many of these alt-nets are making promises that they can’t deliver on.
As more and more alt-nets aim to stake their place in the increasingly crowded UK broadband market – backed by large funds such as Macquarie, Oaktree Capital Management, Warburg Pincus, and the Universities Superannuation Scheme (the UK’s largest private pension scheme) – they run the risk of stepping on each other’s toes. Already, according to management consultancy Analysys Mason, there are almost 75 million lines set to be constructed in the UK. That number is only set to increase, even though there are less than 40 million premises in the entire country. Even more concerning, there are a number of alt-nets that are, in the words of Olaf Swantee (the chair of Community Fibre), just “PowerPoint presentations and no teams on the ground. ” They have may have “opened the street and had a look but they haven’t got a permit yet. ”
As such, while the opportunity to alt-nets afforded by the expansion of high-speed broadband is, to quote Olaf Swantee, “still huge,” the reality is that the market is already beginning to close-up. In the last three years the percentage of UK households with a full fibre connection has risen from four per cent to 21 – making it somewhat concerning that, according to Ofcom, applications to lay fibre have boomed in recent months.
The alt-nets are, themselves, aware of the unsustainability of this model. As more and more seek to populate and impact the UK market, there will be an eventual consolidation process that will see large firms incorporate the infrastructure of smaller companies – similarly to how NTL hoovered up many of the small cable companies that attempted to compete with the major providers in the UK in the 1980s and 1990s. The risk, however, is that many companies have misjudged their valuation and will fail to deliver the promised returns to their investors (many of which are pension schemes).
While alt-nets have stoked a spending frenzy amongst broadband providers that will drastically hasten the pace of a widespread fibre rollout, they have also created a financial bubble that is seeing major providers such as BT increase their spend despite falling revenues. Therefore, there is a clear case to be made for Ofcom to be empowered to regulate the broadband market more heavily – especially if the UK hopes to use the expanded availability of high-speed broadband to power its efforts to ‘level up. ’
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