Global Insight Perspective | |
Significance | BT has committed to investing £1.5 billion to fund the roll-out of a fibre network across the United Kingdom by 2012. |
Implications | BT's commitment marks the first step in kick-starting the build-out of the U.K.'s fibre network and will ensure that there is adequate bandwidth capacity for future broadband services. |
Outlook | Despite today's news headline, BT or someone else will still have to commit more money to fund the roll-out of fibre-to-the-premises across the United Kingdom. |
BT has finally caved in to pressure, announcing plans to invest £1.5 billion (US$3 billion) to roll out super-fast broadband to up to 10 million U.K. homes by 2012. In a statement today (15 July), BT said the new network is part of its wider strategy to deliver next-generation broadband services nationwide and will deliver a range of services with top speeds of up to 100 Mb/s with the potential for speeds of more than 1,000 Mb/s in the future. “This is a bold step by BT and we need others to be just as bold. We are keen to partner with people who share our vision for the next phase of the broadband revolution. We want to work with local and regional bodies to decide where and when we should focus the deployment. Our aim is that urban and rural areas alike will benefit from our investment,” BT chief executive Ian Livingston said.
What's on Offer?
- BT is offering primarily a fibre-to-the-cabinet (FTTC) infrastructure, but insists it will deliver fibre-to-the-premises on new build sites, such as the London Olympic village. Its FTTP network can deliver up to 100Mbps speeds, while the FTTC will deliver speeds of up to 40Mbps. The company's ADSL2+ network will deliver 24 Mbps otherwise.
- Under the plans, BT will increase its current expenditure on fibre network roll-out by around £1 billion, with an incremental expenditure of around £100 million in the 2008/09 and 2009/10 financial years. The remaining incremental spend of £800 million will be spread over the following three financial years.
- To counter shareholder concerns, the company has pledged to continue with its dividend policy, but said it will suspend its £2.5-billion share buy-back scheme from 31 July 2008.
- Crucially too, BT said its plans are contingent on a new regulatory framework to remove barriers to investment and ensure that it can earn a fair rate of return. Accordingly, the company said it will hold discussions with Ofcom to enable a supportive and enduring regulatory environment.
Outlook and Implications
- Succumbing to Pressure: BT's announcement today has finally laid to rest concerns about the United Kingdom falling behind in broadband roll-out. Although the company provides fibre-based services to over 120,000 business customers in the country, its failure to outline a comprehensive plan to roll out fibre to residential premises has worried U.K. authorities, including the government and the national telecoms regulator, Ofcom. The government has been worried about the apparent sluggishness in embracing fibre networks compared to other countries and fears the United Kingdom was being left behind in the fibre race. In November 2007, the government summoned top British telecoms executives to brainstorm on the way forward. Soon after, Ofcom outlined its desire to ensure that the country gets on the fibre ladder, emphasising the need to provide 100-Mbps fibre networks at least in new build sites. Despite responding with a high-profile fibre roll-out in Ebbsfleet, Kent, BT's announcement today is confirmation that the company realises it can no longer resist pressures—governmental, regulatory, financial, operational and competitive—to build a residential fibre network in the United Kingdom (see United Kingdom: 17 April 2008: Ofcom Wants 100 Mbps Broadband Networks for New U.K. Homes; 10 January 2008: BT Wades into Fibre with Roll-Out of 100-Mbps Fibre Network in U.K., 26 November 2007: Government Seeks Way Forward for Future UK Broadband Network; and 26 September 2007: Ofcom Ponders Future Broadband Strategy).
- Is £1.5 billion Enough? For a project that has been valued at £7 billion upwards, BT's £1.5-billion investment plan is a paltry sum, representing about 21% of the minimum required funds for a nationwide roll-out. A closer look at BT's plan reveals the true extent of the company's fibre intentions. Indeed, whereas the fibre vision calls for rolling out FTTP, BT is only offering FTTC and is really not doing much more than it would ordinarily have done without today's announcement. That explains why the company is only talking about an incremental £100 million in capital expenditure for the next two financial years, well below the investment required for true FTTP. The new fibre network will offer speeds of mainly 40 Mbps, significantly less than the vision of 100 Mbps for a truly fibre network. Admittedly, this is higher than the 24 Mbps offered by BT's ADSL2+, which has been enabled by the £10-billion 21 CN project. BT says it will re-evaluate its plans based on the feedback it gets from customers and local authorities. However, if the United Kingdom is to join the likes of Sweden, France and Japan in offering high-speed fibre networks, then BT, or someone else, would have to eventually pay for a full-scale FTTP.
- Upholding the "Wholesale" Format: Regardless of the speeds on offer, BT's decision to uphold the wholesale format for its services will please Ofcom, and more importantly the European Union (EU). Regulators across Europe have worried about the prospect of new monopolies emerging in the wake of new fibre build-outs and have been pondering how to preserve the wholesale format. However, incumbent telcos have largely resisted such a move, with the likes of Deutsche Telekom and France Telecom rejecting any moves to restrict flexibility on their new networks. EU officials have even proposed a 15% risk premium just to get the big telcos to agree to offer wholesale services on their new networks. BT did not explicitly call for a risk premium, but the company is demanding a new regulatory framework that will enable it to recoup its investment speedily and as its rivals in the United Kingdom mull rolling out their own fibre network, BT is calling for them to commit to the wholesale format so as to ensure uniformity in the U.K. fibre market (see Europe: 26 June 2008: EU Dangles 15% "Risk Premium" to Solve Stalemate over Sharing New High-Speed Networks).