Discussions centred on stimulating fibre adoption, reflecting the industry’s shift from a focus on premises passed to delivering connections and returns
“It was the best of times, it was the worst of times”: On 8 June 2023, the Internet Services Providers' Association (ISPA) held its ISP Business Summit 2023. Steve Leighton (CEO, Voneus/Chair, ISPA) opened the conference, painting a mixed picture as to the UK broadband industry’s status quo. Leighton stated that the sector is buoyant and dynamic (despite a difficult economic backdrop), operators continue to deploy fibre and strong competition is resulting in good consumer choice. However, channelling Dickens, he considered that ISPs are facing both the best of times and the worst of times. The ‘build it and they will come’ mantra is not working, while a lack of take-up threatens industry economics, which is bad for operators and the country more broadly. In parallel, investors and debt providers are showing some signs of nerves (making it harder to raise funding). For them, premises passed is no longer enough – fibre builders now need to grow take-up.
Altnet M&A expected, reflecting past consolidation in cable: This thought was echoed by the opening panel session on M&A and investment (and indeed throughout the course of the event). James Harraway (Director, Infracapital) identified a “flight to quality” by investors, who have focused increasingly on connections and revenues. Jayne Longstaff (VP, Macquarie Capital) acknowledged that financing has become more difficult from both the debt and equity sides, as well suggesting that the time has come for the UK’s altnets to achieve their business plans and to convert coverage into adoption in order to reach EBITDA positive. She considered that while the pandemic increased our reliance on broadband, industry still needs to improve awareness about the benefits of fibre. Rajesh Sennik (Partner, KPMG) recognised this challenge, adding that as consumers don’t pay for technology per se, it may be hard for some ISPs to drive pricing changes. On M&A, Sennik drew parallels with the cable consolidation the UK witnessed in the past. Some near-term acquisitions will likely be based on balance sheet considerations, although this could lead to ‘mega mergers’ in future. Harraway saw scope for more acquisitions than mergers in the short-run, especially as some businesses encounter financial issues.
Focus on the brand as much as the build: The question of how to increase consumer awareness and adoption was discussed in detail during a panel hosted by Assembly. Panellists – and the audience – agreed with Leighton’s assertion that fibre deployments do not automatically mean connections, and that natural market evolution cannot be relied upon to deliver necessary take-up rates. Helen Wylde (CEO, Wildanet) saw considerable socioeconomic opportunities stemming from wider rollouts and usage of fibre across the UK, but growing the latter requires altnets to invest in their brand and marketing as much as in their network – particularly as they face a ‘David versus Goliath’ battle with larger rivals. Matthew Hare (CEO, Zzoomm) agreed with the role of effective branding in building consumer recognition, but was not convinced that bundling value-add services alongside broadband would have upsides for all ISPs. Many of the panel’s views were heard elsewhere during the day, with Justin Leese (CTOO, Ogi) emphasising the need for altnets to adopt a hyperlocal approach and to target excellent customer service, underlining that it is impossible to compete with Goliath by copying them.
Telcos are ultimately responsible for driving fibre adoption: The final debate centred on how ISPs can/should navigate various challenges over the next three years. Rob Hamlin (CSO, CityFibre) stated that as things stand most altnets are not EBITDA or cashflow positive, and that it is therefore imperative to cement a competitive market for the long-term – including with appropriate oversight of Openreach. Adrian Dunlop (MD, TalkTalk), considered that there should be at least one scaled alternative to Openreach, while James Fredrickson (Director of Policy & Regulatory Affairs, Hyperoptic) foresaw a “natural recalibration” that reduces the number of altnets – currently ~130 – and potentially allows for more efficient capital allocation. Rebecca Molyneux (Deputy Director, DSIT) stated that the Government considers there is no ‘magic number’ of fibre operators so long as there is a genuinely competitive environment. On adoption, panellists agreed that the onus is on altnets to address consumer misunderstandings, develop effective business models and build trust and reputation rather than relying on policymakers to drive demand. Nevertheless, Fredrickson considered that a gaining provider-led switching process (i.e. One Touch Switch) could lead to “radical change”, with particular benefits for newer entrants.
