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21 November 2019

BT seething at UK free broadband plans, costs grossly underestimated

Broadband as a commodity is a discussion which has waged for a decade. Just as the industry ushers in the gigabit generation with momentous technical breakthroughs of late like DOCSIS 3.1, G.fast, FTTH and even smart WiFi to an extent – the UK’s Labour party inexplicably decided that partial renationalization of British Telecom’s fixed network is the best course of action.

Revealing plans to provide free super-fast fiber optic broadband to every British citizen, the Labour party got exactly what it wanted – whipping up a storm of headlines nationwide. One crackpot reporter even compared the plans to the UK’s National Health Service (NHS), which came under fire from a number of politicians prior to its founding in 1948. Free medical care and free broadband should not be put in the same field, let alone the same basket.

The truth is that broadband has been in the process of commoditization for years, yet it is the service differentiation above basic broadband that creates wealth. In the US, we have seen the unraveling of net neutrality turn the tide on commoditized broadband – although the prospect of commodity broadband in the US market will never be a reality. In that time, we have observed giants like Comcast moving horizontally into content to avoid being sucked into a commoditized broadband market.

Labour plans to fund the radical plans for “full-fiber” (by which it means FTTH) broadband for every UK home and business by increasing taxes on large technology companies. Technology companies are already fleeing the UK as Brexit looms, so proposing inflated taxes seems counterintuitive in the current climate.

Rollout costs are estimated to come in at £15 billion ($19.3 billion) on top of the government’s existing £5 billion ($6.5 billion) expansion allocation. However, if we have learned anything from Australia’s national broadband network (nbn), you can bet that the Labour party has grossly underestimated the projected spend.

Granted, Australia is approximately 32 times the size of the UK and has a incomparably rugged terrain which not only caused FTTH buildout costs to balloon but also saw the project backtrack to instead rollout G.fast and DOCSIS 3.1. Although, the UK houses some 41 million more people than Australia, at almost 65 million people across some 28 million households. A key factor, however, is aggregate length of all access circuits, more than the size of the country or even population.

Labour’s latest plans come after the UK government released a 90-page Future Telecoms Infrastructure Review in July last year, which aimed to justify these ubiquitous FTTH plans by saying fiber to the curb (FTTC) services fail to deliver sufficient speeds. By the same token, the report entirely ignored the benefits of G.fast and DOCSIS 3.1 which, as we now know, saved the nbn’s bacon.

At the time, Faultline referenced a handful of nbn stats which still today offer important lessons. After embracing G.fast instead of trying to deliver FTTH to 93% of Australian homes as originally promised, the government initiative was able to activate some 12,000 homes a week while FTTH activations lagged at around 7,000 a week.

One estate in particular, comprising around 25 homes with particularly poor broadband speeds of between 1 Mbps and 2 Mbps, involved installing a micro-node in the street to bring in 25 Mbps speeds. The cost per premises for the nbn in doing so was slashed from around A$15,000 (US$10,200) per premises to A$5,000 (US$3,400) per premises – and the 25 Mbps speeds were prior to rolling out G.fast equipment.

So, if we take the UK government’s £20 billion ($25.8 billion) pledge and divide this by 28 million households, that works out at a spend of £714.30 ($921) per household. Then consider that costs of maintaining the network are estimated at £230 million ($296.6 million) a year, and we can see that the pledge isn’t even close. Inevitably, the financial burden would trickle down to taxpaying citizens, not just the technology behemoths. BT itself estimates £40 billion ($51.6 billion) for a UK-wide full fiber rollout.

By late 2018 and after countless strategy changes, the nbn estimated a final cost of A$51 billion (US$35 billion), almost double its initial 2013 estimate.

Today, the UK ranks fourth in Europe for gigabit network accesses at 7.14 million, according to a new study from Viavi (see separate story in this issue for full coverage). This equates to 11% of the UK population having access to gigabit internet speeds, which doesn’t even make the top 10 in Europe by percentage of population coverage.

Fiber connections currently make up 89.9% of gigabit accesses in the UK, according to Viavi’s Gigabit Monitor, of which BT’s Openreach delivers 35,000. Worryingly, only one gigabit service launch was recorded in 2019 – on par with when Viavi began collecting this data back in 2012.

And despite Australia’s massive national broadband spend, just 1.4% of the population has access to gigabit speeds – a population coverage of 341,000 people (66.7% of which are over cellular networks).

BT’s Chief Network Architect Neil McRae described the latest Labour plans as “broadband communism” in a tweet, which ruffled a few feathers. It’s worth noting that former British PM Margaret Thatcher set the UK industry back years when she blocked BT from rolling out fiber network infrastructure back in 1990, a situation the economy fears repeating through network nationalization.