Now more than ever, digital connectivity is critical to societal resilience. Sustainable, reliable, and accessible digital infrastructure is essential to build back better for COVID-19 economic recovery and Brexit, but also to aid the efficient use of water resources and facilitate the transition to a net zero energy system.
Fibre broadband has become the ‘fourth utility’ and the telecoms industry is rapidly changing with Alternative Network Providers (AltNets) and challenger Internet Service Providers (ISPs) developing an observable increase in overall market share, which is set to continue. AltNets and challenger ISPs held 8.7% of the overall market share in 2015 and this is expected to reach 14.5% by 2025, gaining another 1 million customers to a total of 3.75 million. These AltNets and challenger ISPs are all competing against BT, Sky Broadband, Virgin Media, and TalkTalk who possess around 90% of consumer accounts.
Gigabit broadband
At the end of last year, the UK government reduced the delivery target for its £5 billion strategy to deliver nationwide full fibre, gigabit-capable broadband coverage by 2025. The revised target of 85% of UK premises will focus on maximising coverage in the hardest to reach areas, but concerns have been raised that rural areas are now at even more risk of being left behind.
Ofcom recently found that over 1.5 million UK households still don’t have internet access, with 6% of homes having no connectivity at all. To resolve this, full Fibre to the Premises (FTTP) with complimentary wireless networks is critical. Despite the progress made in deployment of gigabit-capable broadband so far – 27% near the end of 2020 – there is still a long road ahead.
AltNets have the means and flexibility to meet the requirements of these demands, with operators investing almost £8 billion in 2020 in upgrading networks and spearheading a UK broadband revolution. In parallel with the new entrants in the energy industry who have disrupted and rapidly gained market share, the growing group of ISPs are taking customers from the incumbents. However, there are a number of lessons to be learned from the rapid growth (and current decline) that the energy industry has seen over the past decade.
Increased competition
Challenger ISPs are being recognised for their value in the telecoms industry and the government is encouraging AltNets to bid for contracts in the Building Digital UK (BDUK) programme alongside larger industry players. With this continued support, the UK could generate a level playing field for competition, which will also drive down long-term supply chain costs and improve fibre reliability.
Altnets and challenger ISPs face increased full fibre and gigabit competition from incumbents and against each other, as well as competition against Fibre to the Cabinet (FTTC) providers that advertise as ‘fibre’. To compete at this scale and realise the opportunity, these disruptors need to offer value-added services that enable customers to get the most out of their gigabit connection. For example, market evidence suggests that retention rates of 50% can be achieved by ISPs for TV and whole-home WiFi packages.
However, as evidenced in the energy industry, an attractive market for growth requires nimble new entrants to navigate some fundamental strategic decisions. An increasing number of telcos are struggling with differentiation, establishing identity, accessing and retaining a skilled workforce, and customer service issues.
AltNets continue to deploy fibre infrastructure in local and regional areas that aren’t deemed typically commercially attractive by the larger players. If they can thrive in the competitive landscape, they will no doubt represent the key contributors to achieving vital UK connectivity targets by 2025.
How can the telecoms industry avoid some of the issues that increased competition in the energy industry has resulted in?
