Not that long ago, the UK was considered a laggard in the deployment of fibre broadband, but research from financial ratings firm Moody’s claims this is no longer the case.
The research stated that the market is driven by BT’s accelerated roll-out and the contribution from its infrastructure competition in the form of Virgin Media O2 (VMO2) and CityFibre, but points out that altnets are still deploying networks despite higher interest rates and inflation “painfully” undermining their plans.
Establishing a baseline for its study, Moody’s noted that fibre broadband roll-outs have accelerated rapidly in the UK since 2020, when the UK had one of the lowest penetration rates for full-fibre/fibre-to-the- premise (FTTP) in Europe.
While BT, through its broadband provision division Openreach, VMO2 and a range of alternative infrastructure operators (altnets) such as CityFibre, had ambitious plans to cover most of the UK with full-fibre by 2025, Moody believed these plans were subject to execution risk. Among the reasons outlined for this was that the UK had a poor track record in rolling out full-fibre over previous years.
Yet, as of 2023, this picture has changed markedly, mostly because BT has accelerated its fibre roll-out and that overall full-fibre penetration is around 50% of UK households. This means the UK has moved well ahead of countries such as Germany and Belgium, which both ranked similarly in 2020 for fibre roll-out. The latter point and the general speed of UK fibre deployment notwithstanding, this still meant UK fibre penetration continued to lag European average levels.
“Full-fibre is a key tool for BT in fending off competition from the likes of CityFibre and retaining customers. However, the network is costly and high capital spending will weigh on the company’s credit quality in the next few years,” commented Luigi Bucci, associate vice-president, analyst at Moody’s Investors Service, commenting on the research.
“Altnets also continue building networks despite higher interest rates and inflation threatening their plans. This should lead to some consolidation among the altnets. Overall progress in rolling-out full-fibre is indeed notable, however, most operators’ plans are ambitious and therefore subject to execution risk.”
Despite the acceleration in UK roll-out, around 15 million UK households are still unable to access full-fibre services, and there are long-standing fears of a digital divide in the UK.
Moreover, Moody’s pointed to the fact that UK full-fibre take-up rates remained low at below 30%, which is a key risk for operators who are spending tens of billions of pounds with uncertain prospects for return on their network investments. Moody’s also noted that BT has said it aims to reach take-up of around 40% in March 2026 from 30% in March 2023 and expand this number gradually thereafter. Take-up rates are typically lower for altnets, at around 20%, according to the Independent Network Cooperative Association (INCA).
Moody’s suggested that take-up may be low either because customers lack awareness that full-fibre is available in their area or, more simply, because they need to wait until the end of their current contract before they can upgrade. The study cited research from CityFibre that found that more than 60% of customers do not know the difference between full- and part-fibre networks. Other factors highlighted included that some infrastructure operators focus more on coverage, rather than adding customers, or – to some extent – the cost-of-living crisis.
Looking at other issues that could hold back the market, Moody’s identified higher interest rates and tougher financing conditions that pose a major challenge for many altnets, which often created their business models and set targets when interest rates were far lower.
It added that such firms face increased costs from inflation, both for labour and construction, and their take-up rates are still low because their network market share is growing only modestly. Moody’s said that these challenges were evident in the recent default by Broadway Partners, Zybre’s decision to cease accepting new customers, Trooli’s change of ownership, and CityFibre cutting 20% of its workforce.
Going forward, Moody’s expects broad consolidation in the altnet landscape. It said overbuild risk will gradually grow as BT gets closer to its target of covering 85% of the UK with fibre access by 2025 and the business model of many altnets will become less viable as their first-mover competitive advantage reduces.
Moody’s believes this could be because of the need to keep prices low to accelerate take-up and that overbuilding in less competitive areas might mean that the local market might struggle to support more than two or three infrastructure operators. This might be the case even in areas with stronger demand, although to a lesser extent.
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