Over the course of its relatively short lifetime, Internet technology has evolved significantly. Once used solely as a network for academics to exchange research, the Internet is now firmly embedded into our everyday lives, as a utility that the majority of society cannot function without.
This dependence continues to place huge pressure on the UK’s aging network infrastructure and has therefore heightened the need for investment in next-generation networks, to keep up with consumer demand. With ever-increasing bandwidth intensive technologies like augmented and virtual reality set to become even more popular in the coming years, and with consumer expectations trending towards seamless integration between mobile and the home, how can UK network operators ensure that their offerings keep pace with consumer demand? And with the levels of investment required to support the deployment of expensive infrastructure, how can operators remain profitable, in a highly competitive and saturated market?
Sharing the Cost of Fibre
The UK relies heavily on Openreach’s network infrastructure for Internet services, which is comprised mostly of older copper connections that serve over 20 million households . Whilst copper was adequate in recent years, capacity is now wearing thin, and it won’t be long before it is no longer capable of providing the speeds required for organisations to launch new Internet bandwidth intensive products and keep up with data consumption demands. Full-fibre networks or fibre-to-the-premises (FTTP), offer the most reliable and fastest network connection speeds available, and Openreach has aspirations for a large-scale roll-out of FTTP across the UK by 2025, connecting up to 10 million premises with full-fibre . The biggest challenge associated with this proposal is the cost of installing connections, which is estimated to between £500 and £800 per household, and therefore it is unlikely Openreach will be able to complete this roll-out without significant support and investment from other network operators or investors . Challengers, like CityFibre and HyperOptics, are also rolling out full-fibre networks on their own, directly competing with Openreach, with plans to connect millions more premises over the coming years. The increased competition and innovative delivery approaches used should benefit consumers, by lowering the cost of deployment, increasing consumer demand and attracting further investment.
Fixed and Wireless Convergence
Whilst it’s clear that upgrades are required to increase UK fixed line network speeds, the introduction of 5G could provide some much-needed assistance for both mobile and broadband users. Initial trials of 5G have demonstrated speeds of up to 4 Gbps , over 100x faster than 4G, which is more than enough bandwidth to cope with the demands of today’s data hungry consumers. 5G differs from 4G in that it utilises a different part of the radio frequency spectrum meaning the wireless signals that are used have a much shorter range. Whilst this might sound like a drawback, crucially they are much less susceptible to interference, meaning the signal within homes and offices should be greatly improved . This opens up the possibility of utilising 5G for home or office Internet, replacing traditional, low speed broadband connections and converging wired and wireless services. This solution will still require huge investment to improve the fibre backhaul connections necessary to support 5G, however it will almost certainly benefit network operators as it will address the most costly and least efficient, ‘last mile’ , of a full-fibre connection.
Incentivising Super-Fast Broadband
At present, only 850,000 of 28 million households in the UK have access to a truly full-fibre connection (up to 1Gbps), a figure that the Government has committed to increasing to 10 million by 2022 . In terms of supporting this commitment, the Government has established a number of funds, the most significant being a £400 million Digital Infrastructure Investment Fund which the Government hopes will unlock an additional £1 billion of capital investment in the sector . Despite this commitment, the roll-out of full-fibre across the country is estimated to cost £30 billion  and so the majority of investment will still have to come from private funds and will not be without risk. The most prevalent risk is the apparent lack of willingness by consumers to pay up to 50% more for super-fast broadband , an attitude that network operators must address if they are to put forward a business case that attracts investors. This risk is further compounded when considering potential profitability between both urban and rural areas, and is likely to dissuade providers from investing in rural areas, leaving those living in such places with little option. It is likely the Government will have to incentivise rolling-out fibre to these parts of the country, in order to ensure connectivity in line with their ambitions.
Fibre Fit for the Future
Retiring the current ageing backbone of the UK telecoms network whilst simultaneously deploying fibre will be a huge undertaking, and an overhaul of this magnitude will not be without challenge. In our view the key factors to consider will be:
1. Network operators must strike the right balance between investment in fibre and 5G, in an effort to leverage potential synergies between the two technologies.
2. Collaboration and infrastructure sharing between network operators will be key to help mitigate the risk associated with consumer demand or cost recovery uncertainty, and is therefore necessary to encourage investment. Lessons can be learnt from Spain and Portugal where successful partnerships have assisted in connecting 71% and 89% of homes respectively with full-fibre.
3. Finally, network operators will have to look carefully at their premium broadband offerings, and develop pricing models that incentivise consumers to upgrade, creating demand for super-fast broadband thereby encouraging further investment.
Irrespective of the approach, if the UK is to safeguard future prosperity then guaranteeing access to a world-class fibre network will be critical to success. Innovation, adaptation and co-operation will be key to achieving this aspiration and incumbents should look to alternative providers for new perspectives on network planning and deployment for cost effective ways to meet the future demands of both consumers and business. Regulators will also play an important role in this scenario and careful consideration needs to be applied to any new regulation to ensure that the market remains fair and competitive and incentivises investment.
Moorhouse work with several of the UK’s largest telecommunications providers to help solve their most complex business challenges. Our work includes leadership of major transformation programmes, re-definition of business operating models and helping clients improve their capabilities to keep pace with the ever-changing business environment.
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