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Can New Competition Deliver Ultrafast UK Infrastructure?

Pete Swift

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Pete Swift talks connectivity with Greg Mesch, CEO of CityFibre. They discuss the rise of the alternative full-fibre infrastructure and the value of ultrafast internet to UK businesses.  

Connectivity problems and slow internet speeds have been a long-standing complaint for many UK businesses. In a digital world where video conferencing, real-time analytics and e-commerce are increasingly needed, fast and stable internet is essential.

But when you look at the digital infrastructure which is the backbone of this important economic driver, many regions are still not up to scratch. Consequently, as a country the UK languishes a long way down the league tables for connectivity and speed.

Global broadband average speed league table

  1. Singapore 55Mbps
  2. Sweden 40Mbps
  3. Taiwan 34.4Mbps
  4. Denmark 33.5Mbps
  5. Netherlands 33.5Mbps
  6. Latvia 30.3Mbps
  7. Norway 29Mbps
  8. Belgium 27.3Mbps
  9. Hong Kong 27Mbps
  10. Switzerland 26.9Mbps

31. United Kingdom 16.5Mbps

Data Speed

Data has been heralded as ‘the new oil’, the key resource powering the fourth industrial revolution. And recognising the significance of a data-orientated economy, many countries have invested strongly in high speed full-fibre networks. However, in much of the UK we still rely on an old legacy copper infrastructure to carry our data, and this poses clear limitations on speed.

“The penetration of fibre in the UK is one of the lowest in the developed world.” says Mesch. “Entire cities have been left behind.”

According to a report released this Autumn, the UK is ranked 31st in the world for internet speeds, lagging behind most of our European neighbours. And these rankings are not just cosmetic; slow speeds and poor connectivity pose material problems for business, which Mesch thinks constrains our ability to compete globally as a modern service-orientated economy.

There is a wide consensus that there has been long term underinvestment in UK digital infrastructure, with many critics pointing the finger at a distinct lack of competition and the virtual monopolisation of the market by BT Openreach.

Mesch describes the historical landscape as a market with a “fat incumbent and no competition”. He believes this has left the country with an unhealthy over-reliance on a single dominant infrastructure and thinks we desperately need competing infrastructure.

A catalyst for change

This is where Mesch believes CityFibre has an important role to play in the national ecosystem:
“We see ourselves as a catalyst for change. Our goal is to implement a transformational infrastructure that caters for the public sector, business, mobile and residential verticals in cities outside of the M25. These are cities that have been struggling with underinvestment and are still dominated by an ageing copper infrastructure.”

For the individual business or consumer, fibre provides high speeds, low latency, and better reliability. Then at the city level, good connectivity is linked to job creation and economic growth. But beyond this, at a national level, Mesch argues that it is the power of competition which will force through change and deliver widespread improvement.

“The minute you provide full-fibre potential, everyone just switches over. And the rate at which this is happening is getting faster and faster. As soon as one person gets the benefit, everyone else says ‘I want some of that – I can’t stay on something that provides terrible service, as soon as my contract expires I’ll switch it over.”

To achieve meaningful market tension and establish the position of a serious contender, Mesch knows he has to lay claim to a sizeable chunk of the market. This is the driver for CityFibre’s immediate goal to reach 50 UK cities: “We want to get to 50 cities as fast as possible, because that would place us at 20% of UK premises. If you want to present a competitive network then you’ve got to start with some pretty big numbers, so we’re trying to get to that 20% mark ASAP.”

Once this immediate milestone has been achieved, the long-term ambition is to reach 100 towns and cities, eventually covering 60% of UK business and 40% of homes outside of London.

Regulatory efforts

The goal to establish a new full-fibre infrastructure and lessen the dependency on the current framework is one shared by both the UK Government and the telecoms regulator Ofcom.

Through successive reviews Ofcom has worked to identify ways to improve internet standards and lower the barriers to competition. This has been a lengthy process: back in 2005 Ofcom ruled that BT needed to open up the local infrastructure loops to give rival companies like TalkTalk access to the copper network so they could offer competing services.

In response, BT established Openreach to separate its delivery and systems functions and offer wholesale products to other providers. While this did provide an element of competition, rivals continued to question the fairness of the setup and pushed for complete separation. In 2016, following a further review, Ofcom ordered BT to legally separate from Openreach and become a distinct entity with no BT branding association.

As part of this latest review, Ofcom also outlined a new strategy to promote a mass roll-out of full fibre networks, citing that network competition was the most effective way to spur continued investment in fibre networks and would also reduce the country’s reliance on Openreach.

Investment in infrastructure

This full-fibre investment had previously failed to materialise under BT Openreach. By 2016 when Ofcom ordered a split, the UKs full-fibre penetration was sitting at barely 2%, while a number of European countries had reached 70% full-fibre coverage.

Mesch thinks that the changes in regulation coupled with heightened competition will force BT to improve:

“The whole regulatory environment is being shifted now, the last digital communications review said we’ve either got to break BT up entirely or we’ve got to support competitors and rely on the competitive tension created to make BT better. So we’re part of the competitive tension and will help drive this improvement.”

To capitalise on regulatory changes and support the growth of full-fibre infrastructure, the government has provided a £200 million stimulus into the market through their Local Full-Fibre Networks Programme. This forms part of a wider £1.5 billion Digital Infrastructure Investment Fund to support ultrafast fibre broadband and 5G rollout.

Mesch says that the recent changes have made this an attractive area for external investors and thinks that if regulation is consistent and prices remain stable then investment will ‘pour in’. Furthermore, he argues that from a national perspective full-fibre represents a solid long-term investment that could pay for itself just from the savings in upkeep:

“In any of the cities where they have actually deployed full-fibre, the maintenance and power costs alone would have paid for the implementation. So if you take 5 to 10 years of maintenance and power costs on copper infrastructure that would probably pay for a copper to full-fibre switchover.”

Beyond the savings, Mesch believes are a range of lateral economic benefits: “we think that fibre fuels innovation, fuels growth, fuels jobs starts, fuels employees. A city like Aberdeen can increase roughly £400 million worth of GVA. With a next generation, future-proof full-fibre infrastructure at its foundation, everything in the city can be connected, everything runs faster.

“Jobs don’t leave – the whole eco system of an environment is increased and the digital capabilities of businesses and citizens are transformed… Make no mistake about it, fibre is the future.”

Pete Swift

DIGIT Managing Editor and Head of Research

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