Strange Dynamics in the UK FTTx Market

The UK has been a market of particular interest for me in the last few months, partly because as I noted in a previous post, we have seen a lot more private initatives in FTTH there than in most other markets. I believed back then, and still do, that BT's clear "FTTC only" stance explains why these initiatives have bloomed.

Before anyone jumps on my back for saying that BT's approach is "FTTC only" despite the fact that their plans have since 2009 included 10% or more of FTTP (depending on announcements), I would simply point out the fact that the FTTC deployments have progressed steadily, meeting and sometimes exceeding targets whereas FTTP plans have gone nowhere. The fact that over three years after their initial NGA announcement, BT is still launching pilot FTTH programs says a lot about their commitment to more than FTTC (or lack thereof).

Based on this, one can either applaud BT for their caution or blame them for their lack of forward thinking, but ultimately neither position accurately reflects the constraints they operate under. In an excellent post on the CFH blog last week entitled An Ocean Apart, ex-Diffraction Analysis collaborator James Enck analyses BT's financial results and comes to the evident conclusion that no matter how much they might be saying that they're also doing FTTH, their financials say otherwise.

In my view, BT's constraints being as imperative as they are, there's not much point in blaming their approach. There are two major mistakes they made however that I think are creating the climate for strong infrastructure competition to BT in the UK:

  • the first one is to not have planned ahead for FTTH openly. In other words, being transparent and explicit that FTTC was a transitory technology and that exchanges would be upgraded to FTTH within a planned timeframe. Even if that timeframe is long, publicizing such plans and sticking to them would have created a disincentive for infrastructure competitors. Cynical maybe, but private players and local governments seeing the complexity and cost of infrastructure deployment might have arbitrated differently if they knew that the state of the art solution would come to them in a reasonable timeframe.
  • the second one is not to have focused their FTTC deployment outside of areas already covered by Virgin Media. When arbitrating between low costs and high potential take-up, BT went for the former when it could have created more goodwill and higher customer loyalty by focusing on the areas where the need was starker.

I have to reiterate here that I have serious doubts about BT's strategy. My back of the napkin reconstruction of their deployment costs for FTTC (especially due to that insane in-home installation requirement, sometimes multiple home installations apparently...) makes them excessively high (for FTTC) and maybe not that far from a well engineered PON deployment. The fact that they're going head-to-head with Virgin Media without a decent TV offer and with a lot less headroom bandwidth-wise seems to spell doom as well. I hope I'm wrong.

Meanwhile, BT has passed 10m homes (although conversations I had with people on the ground suggest that may be over-inflated) with FTTC, and has 550k subscribers on its Infinity retail offer. I couldn't find any numbers on other service providers leasing the FTTC wholesale products, but I'm told it's around the 10-20k mark (any pointers welcome). Considering how long they've been on the market so far, that's not a bad take-up overall, but it's not glorious either, and very very far still from a take-up rate that could conceivable lead to a positive ROI...