Tuesday, 19 June 2018

Could the UK ever be a European full fibre champion?

By Chris Kelly, Total Telecom`
Friday 25 May 18

The UK government called for a renewed focus on fibre networks, but is the country capable of catching up to its European neighbours anytime soon?

This week, the UK's finance minister Philip Hammond said that the UK would need 15 million fibre to the home (FTTH) connections by 2025, in order to enable the profitable evolution of the country's digital economy.  As you might expect, the announcement was met with a clamour of enthusiastic agreement by the UK's alt-nets and fibre network builders. The enthusiasm is tempered, however, with a healthy dose of realism, as the industry lined up to remind Mr Hammond that if he is serious about achieving that target, huge levels of investment will be required.  “The Chancellor’s announcement is welcome news and addresses our calls for a national, full fibre plan, which is desperately needed to secure our future economic growth. However, we must not underestimate the sheer scale of the challenge," said Matthew Hare, chief executive, Gigaclear.  This sentiment was echoed by CityFibre's CEO, Greg Mesch, who called for Mr Hammond to do away with the UK's "make do and mend" mentality.   “The Chancellor&rsquo…

This week, the UK's finance minister Philip Hammond said that the UK would need 15 million fibre to the home (FTTH) connections by 2025, in order to enable the profitable evolution of the country's digital economy. 

As you might expect, the announcement was met with a clamour of enthusiastic agreement by the UK's alt-nets and fibre network builders. The enthusiasm is tempered, however, with a healthy dose of realism, as the industry lined up to remind Mr Hammond that if he is serious about achieving that target, huge levels of investment will be required. 

“The Chancellor’s announcement is welcome news and addresses our calls for a national, full fibre plan, which is desperately needed to secure our future economic growth. However, we must not underestimate the sheer scale of the challenge," said Matthew Hare, chief executive, Gigaclear. 

This sentiment was echoed by CityFibre's CEO, Greg Mesch, who called for Mr Hammond to do away with the UK's "make do and mend" mentality.  

“The Chancellor’s announcement of more ambitious full fibre roll-out targets underlines more than ever the need to end the UK’s “make do and mend” approach to digital infrastructure: copper is dead. It is time to focus on building the future-proof full fibre networks that will underpin the UK’s economy for generations to come.

"For this ambition to be realised, the Government and Ofcom must now rapidly set out a clear plan to lessen the country’s reliance on Openreach and harness the momentum and major investment being made by new entrants,” he said. 

The consensus seems to be that, while the UK is making the right noises about its commitment to full fibre Next Generation Networks, there is a mountain of practical challenges to be overcome if it is to realise its ambitions. 

With the Connected Britain event just around the corner, I met up with Mikael Sandberg, chairman and Richard Watts, Head of Global Real Estate at VXFiber, to discuss the many challenges and opportunities facing the key stakeholders in Britain's full fibre networks. 

 

15 million FTTH connections by 2025? 

So, is the UK likely to deliver on its call for 15 million FTTH connections by 2025? In a word, no! Industry analysts seem fairly united in their assertion that the UK will struggle to meet this target.

"I don't think it’s a case of lack of aspiration or lack of funds. It is a case of lacking the execution power to do it," said Sandberg.

VXFiber has worked extensively in Sweden, and the Scandinavian nation is a good example of the intensity of focus and unity of purpose that is required to rollout fibre on a national scale. Sweden has plans in place to reach 98 per cent of its population with FTTH by the year 2025 – a startling reminder of how far behind Europe's fibre leaders the UK really is. To date, Sweden has provided roughly 60 per cent of the population with FTTH services. 

"In Sweden it has taken 15 years to reach just over half of the population. That was going at full pelt – the money was there; every resource was deployed and still it took 15 years," explained Sandberg. 

"In the UK, we have 3 or 4 per cent FTTH penetration rate, according to Ofcom, so actually we need to look at a 10 to 15-year plan. It's certainly not going to happen by 2025," added Richard Watts. 

 

Significant obstacles to overcome 

So, if it is not merely a lack of money, why will the UK struggle to rollout fibre at scale? The short answer is that building fibre networks is a tricky, and often invasive, process for which the UK does not have the requisite levels of experience in its engineering workforce.

"People underestimate the difficulty of connecting all the way to a property. We can dig in the street, that's not a problem, but the tricky part is to connect all the way up to people's homes. The types of skills you need to lay fibre in the street is very, very different from those you would need to connect people's houses. Have a conversation with a homeowner and discuss the potential ruining of the wallpapering in the lounge and see what they say. It's a scarce skill set here in the UK and elsewhere in Europe," explained Sandberg. 

Raising awareness of the importance of fibre is also an issue. While government departments may be alive to the transformative potential of full fibre, symmetrical gigabit broadband, great swathes of the British public are yet to embrace the idea. 

"We need to build awareness quickly. It seems crazy to say that home developers now are building new build homes without full fibre access. It would cost those builders virtually nothing to do it, they would sell those properties quicker and could potentially increase sales prices by 5-10 per cent. Builders should be doing that and we need to be reinforcing that message. That is one of the key reasons why we won't hit 15 million FTTH connections by 2025," said Watts. 

"When you build houses for millennials, fibre connectivity is the most important priority," added Sandberg.  

In Sweden, the government incentivised take up of full fibre gigabit broadband by offering tax breaks directly to consumers who had their properties connected to the network. 

"Through the encouragement of local councils and the education of those in the property world, people began to realise that gigabit connectivity was part of their future too. That was enough to mobilise the whole country. It's not a case of merely pouring money into the situation - you have to look to leverage that money," explained Sandberg.  

 

Creating the right conditions for investment 

In addition to properly leveraging the money it has already invested, the UK government needs to form a cohesive plan on how it will create favourable market conditions for future investment in the sector.

"There is a lot more that they [the UK government] could be doing at a policy level – tax breaks and so on. These things help to inspire other people to get involved," said Watts.  

Speaking at the Gigabit Access event in Brussels last month, Anthony Whelan, of the European Commission, highlighted a potential €150 billion shortfall in full fibre investment across the continent. 

"We estimate the sort of investment required, if you follow the normal capex structures of the industry, will be somewhere in the region of €500 billion, and we see an investment cycle that would see us hitting around €335 million investment by 2025. So you are looking at a shortfall in excess of €150 billion and various strategies need to be devised to address that gap," he said. 

Referencing that shortfall, Watts said that the UK government needed to focus on how that gap was going ot be plugged. 

"Where is that funding coming from? It's not going to come from the telecoms sector and it's not going to come from the public purse. That means that other people need to be enabled to invest in that infrastructure and thus get a return on their investment. The policies, the planning and the regulation needs to allow those parties to invest with players like ourselves within that fibre infrastructure. They need to be able to get that return on investment in the same way that they would get a return on investment for a real estate investment.

"At the moment the telecoms sector isn’t geared that way – telcos are being forced to raise money off their balance sheets without necessarily having the revenues to sustain that level of debt. So, there is a limit to what the sector can do. At VXFiber, we are enabling that external investment," he said. 

While the UK is undoubtedly looking to accelerate the rollout of FTTH connectivity across the country, it seems that Mr Hammond may have underestimated the sheer scale of implementing 15 million homes to full fibre networks by 2025. Let's hope he proves me wrong. 

 

Mikael Sandberg and Richard Watts of VXFiber will both be sharing their expertise at Connected Britain in June. Click here for a full agenda and to find out how you can be a part of the show. 

 

Friday Review – 25/05/2018

 

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