Ode to the AltNets

Telecoms.com periodically invites third-party experts to share their views on the industry’s most pressing issues. In this piece Sarah Mills, Chief Revenue Officer at Neos Networks, looks at what it takes to succeed as a challenger fiber company in the UK.

In recent months, some incumbent telcos have questioned the viability of the Alternative Network Provider (AltNet) business model. Your concern? That the provision of extensive fibre, or superstructure, across towns and cities could see few players cross the finish line in the race to upgrade the UK to full fiber connectivity. But what has led to this assumption? And is this current judgment case justified?

Over the past decade, we’ve seen dozens of AltNets emerge, encouraged by the opportunity to bring the UK on par with the rest of Europe on fiber by replacing old copper infrastructure with fiber optic technology. Despite the fact that many AltNets had no skin in the game from the start, they were sophisticated in their approach, identifying locations and communities of interest hungry for superfast services.

This approach attracted significant investment from private equity, banks and investors to support construction. And it’s not surprising given the business agility they boasted in speeding up the rollout of fiber to a nation in need of digital infrastructure. And yet, just a few short years after their inception, the competitive relationship between incumbents and AltNets is on rocky ground, with accusations of “stifling” competition and concerns that consolidation could trigger market volatility.

Build it and maybe they won’t

The challenge for AltNets is that many of their business models were based on the assumption that if an AltNet was there, an incumbent wouldn’t overwhelm them. This has not been the case – and some incumbents have accelerated their fiber deployment faster than many challengers expected. And despite the increasing availability of full-fiber connections nationwide, both groups face a similar conundrum: low market penetration.

Some of the largest players still sit below the 30% penetration threshold to see a return on their full fiber investment in the next 12-14 years. If the rest of Europe is anything to go by, markets where full fiber services are maturing could start to see prices for Fibre-to-the-Premise (FTTP) connectivity drop. The sustainability of competing on price can create problems for AltNets, meaning that it would be unrealistic to think that so many AltNets will last.

A combination of challenges means that consolidation is pretty much inevitable. Both successful AltNets and some of the larger players will choose to absorb other existing AltNets that have completed Phase 1 investment but lacked the best network connections to succeed. Maintaining independence for AltNets will mean unlocking the economies of scale and value needed to survive.

AltNets still have some tricks up their sleeve

The reality is that AltNet competition is having the desired effect, and the incumbents fear their challengers more than they might be letting on. AltNets’ sophisticated approaches to identifying the viability of their services by finding niche markets and communities while providing services profitably have helped. That success has and continues to whet the appetite of investors. But as the fiber yield declines, neither AltNets nor the incumbents will be completely immune. AltNets must have an established industry as the incumbents will be more accustomed to this scenario and will have their marketing power, coverage and brand strength to fall back on.

While it won’t be economically viable for six or seven companies to compete for market share in any given location, the game is far from over for AltNets. A new report found that AltNets often reap the top speeds in key areas of the UK, a competitive advantage that will attract envious glances from many. These high-capacity, high-quality network services are essential for data-hungry customers, especially enterprises that want to pull resources down from the cloud or transport large amounts of data. It is also essential for high-performance virtual reality and other video applications that suffer from buffering if the network cannot match the demand.

Addressing the needs of more densely populated business zip codes is a key opportunity for AltNets to achieve business resilience as competition intensifies. They can support the creation of technology hubs outside of London by educating businesses on how connectivity can act as a springboard to support their business function, while marketing the future-proof nature of gigabit-capable services beyond the typical ‘super-fast ‘ to create a strong foothold in niche markets.

The British government must be balanced

It is also increasingly clear that the expansion of FTTP services will play a crucial role in the government’s smoothing agenda. During the pandemic, connectivity was key to keeping workers and communities connected to ensure business continuity, enabling years of digital transformation in a matter of months. AltNets have shown their value in achieving this goal, but the playing field is not so level when it comes to government funding, access rights and wayleaves.

While some vendors are able to move at speed without the need to negotiate the permissions, smaller players must self-validate when aggregating connectivity. The resulting additional fees create more challenges for AltNets and further delay the effectiveness of the Project Gigabit plan. It seems that when it comes to ‘leveling-up’, there is an argument that it should also apply to challengers in the telecoms infrastructure provider environment.

As the fiber race heats up, there is little doubt that we will see major shifts in the market for fiber connection suppliers. The ultimate success of AltNets will depend on the economics of how they reach customers, but also how they serve them, continuing to compete with market-leading speeds and high-capacity, end-to-end connectivity for businesses and consumers. It will be imperative to understand customer needs and continue to be sophisticated in their approach to identify businesses and zip codes that place a premium on connectivity. But it will also partner with national connectivity aggregators that can expand AltNets networks and provide higher capacity to hard-to-reach locations to continue to generate long-term revenue and achieve business resilience.

 

Sarah is responsible for Neos Networks’ strategy across the sales division, ensuring that customers and partners are well supported and that Neos Networks meets its ambitious growth targets. Sarah has over 20 years of experience, having worked at O2 for eight years, followed by seven years at Telefonica Global Solutions leading business development and strategy across Latin America, China and Europe.

 

William

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