Fujitsu, Virgin and Talk Talk rock BT’s boat

Uk_dp (Note: whenever I mention BT in this post, I mean the BT group, including openreach, wholesale and retail)

Incumbents are facing a difficult conundrum as the market (slowly) shifts from copper to fiber. Short-term financial considerations (and shareholder pressure) push them towards not investing in FTTP, but a combination of political and competitive pressure in areas where the business model is achievable (albeit somewhat longer term than telecom industry norms) forces them to initiate some kind of response in these areas. BT, unlike other incumbents, has chosen a deployment model that is mostly FTTC (as an examination of their list of Super Fast Fibre Access Exchange Area Roll-out plans will highlight). I have doubts about the viability of their choice (and about some of the technical implementation choices too) but that's not the purpose of this post.

BT has a response in dense urban areas, whether you consider it sufficient or not to meet demand and face competition. That leaves 60% of the population uncatered for, and there is still a significant threat there: non-dense communities (which more often than not aren't deep rural either) may still want superfast broadband but with no chance of getting it from BT in the foreseeable future. As a consequence, they examine various options of national and/or European funding, consider their own business cases for infrastructure deployment and initiate projects when these things align. These rural projects will gradually chip away at BTs infrastructure monopoly, a threat that has been well identified. BT is lobbying against these projects, as highlighted in an intervention earlier this year by their head of wholesale (see BT Warns Against Market of Smallerer Rural Fiber Optic Broadband ISPs).

Two things before I move on:

  1. I think, as a citizen, it's legitimate to feel outraged at an incumbent saying "I won't invest but I don't want anyone else to invest". Much as I respect Sally Davis, the chaos she predicts isn't that serious or likely, and has been addressed in some countries like Sweden (see project Cesar). This is about monopoly protection first and foremost and it should be seen as such by policy makers and people who care about regional development.
  2. Lest I be seen as a BT-basher, this is in no way unique to Britain. In virtually every country you see the same incumbent behaviour (from Telefonica's recent attempts to force the Viladecans deployment to stop to France Telecom's elaborate preemption of a large portion of territory which they will not connect for at least 4 years, probably more). I will address that in another blog posting soon.

So anyway, someone has heard Sally Davis' plea, but it's probably not the response she hoped for when she made those statements earlier this year. Yesterday, Fujitsu, Virgin Media and Talk Talk announced a co-invested deployment in a rural FTTH infrastructure that will ultimately cover 5 million homes (20% of UK homes). The press release of the announcement raises many questions (about the capital structure of the operation, the wholesale model, the dependency on duct and poles pricing models, the areas targeted, etc.) but one thing is clear: if this goes forward, BT can write off 20% of their copper infrastructure.

For the UK government, assuming they don't have an excessive willingness to protect their incumbent (unlike say the French government), this is a boon: with limited public funding, they will be able to prove that something is being done about connecting some of the have-nots. Who wouldn't want that ?

Now let's not be too naïve about this announcement: at this stage it's just an announcement, and furthermore an announcement with caveats on the wholesale access pricing to ducts and poles. Furthermore, the alliance of Fujitsu, Talk Talk and Virgin Media (with Cisco equipment powering it all) will face many of the issues that large scale FTTP deployments have faced elsewhere: what do you sell that's differentiating enough to make customers switch (usually easier in rural areas), what's your go-to-market model to maximise take-up, how do you collaborate with multiple local governments who want the infrastructure, but not exactly where and how you would like it deployed, etc.

Still, this is a very interesting initiative and potentially a first in Europe that could give others ideas. As Herman Wagter wrote in his Diffraction Analysis report Should City Cats Be the First to Play with the Fiber Yarn? there's a lot of sense in targeting smaller communities. I don't know if Fujitsu intends to or has the financial capacity to replicate this elsewhere in Europe, but it's certainly worth following!