BT Announcement Represents First Major Step Towards Next Generation Access in the UK, says Analysys Mason
 
Matt Yardley, Partner at Analysys Mason, comments on BT's large-scale fibre investment

At last, BT has decided to invest in fibre on a large scale. This is great news for the UK, and will remove some of the awkward questions about why are we languishing behind many other nations in the provision of high-speed broadband. BT’s announcement is primarily about VDSL/FTTC, with some limited FTTH. Financially, this is a sensible step for BT, and should not preclude a move to more widespread FTTH in the longer term.

In our view, the total investment of £1.5 billion for 10 million homes looks reasonable, although the press release states roll out "...to as many as 10 million homes by 2012", so actual coverage may be lower. The Broadband Stakeholder Group (BSG) is currently investigating the costs of FTTC and FTTH on a national basis, and importantly, how costs vary with geography.

There are two other aspects of the announcement that are worth mentioning.

First, it is not yet clear what BT’s statement on the role of regulation and fair return on investment will mean in practice. BT appears to be asking for more symmetric regulation, whereby other fibre operators will also be required to wholesale their services. Ofcom is expected to provide details of its proposals for regulating NGA in September this year. It will be fascinating to see to what extent, if any, Viviane Reding's recent comments on a ‘risk premium’ for NGA investments factor into Ofcom’s thinking.

Second, we expect there will be greater emphasis than envisaged on the issues associated with sub-loop unbundling (SLU). This will now be a very important consideration for alternative operators’ future strategies. To date, SLU charges have not been the subject of as much regulatory scrutiny as LLU charges. This is now likely to change. However, it is not clear to what extent BT will be promoting a generic Ethernet access product (as being developed for the Ebbsfleet FTTH deployment) over VDSL/FTTC.

The reference to iPlayer is also interesting, especially as many of the issues around delivery of video services relate to backhaul, not access networks. Lower charges from exchanges to core network will be good news for local loop unbundlers, but it is far from clear how bitstream-based ISPs, which still support a large part of the broadband user base in the UK, will be affected. It is possible that the gap between the LLU and bitstream cost base will get wider.

Finally, BT’s announcement suggests both urban and rural areas will benefit. This may be true in the long term, although it seems unlikely that there will be significant rural deployment for the £1.5 billion figure indicated. This raises a wider public policy question: What about the remaining 60% of homes? BT states it wants to work with local and regional bodies to focus investment, which makes sense. It is also consistent with recommendations in our report for the BSG on public sector intervention in next generation broadband. However, there may be an even greater role for the public sector in stimulating investment beyond the initial 40% coverage, and almost certainly a larger role for the public sector, compared with what happened with the initial roll-out of first generation broadband.