BT reports flat full year numbers but feels bullish about fibre

UK telecoms group BT revealed flat revenue growth on its full year 2018 report, but its new CEO said all the right things about investment.

Revenues were down a percent, but earnings per share were still up 6 percent. Of the business units only the biggest – consumer – showed any growth, with all the B2B units showing small declines. BT expects the 2019 financial year to deliver more of the same, because reasons. It said it has raised its capex guidance to £3.8 billion, but it ended up spending almost £4 billion in the 2018 financial year despite guiding £3.7 billion a year ago.

BT FY 2018 table

“BT delivered solid results for the year, in line with our guidance, with adjusted profit growth in Consumer and Global Services offset by declines in Enterprise and Openreach,” said new Chief Exec Philip Jansen.

“We need to invest to improve our customer propositions and competitiveness. We need to invest to stay ahead in our fixed, mobile and core networks, and we need to invest to overhaul our business to ensure that we are using the latest systems and technology to improve our efficiency and become more agile.

“Our aim is to deliver the best converged network and be the leader in fixed ultrafast and mobile 5G networks. We are increasingly confident in the environment for investment in the UK. We have already announced the first 16 UK cities for 5G investment.

“Today we are announcing an increased target to pass 4m premises with ultrafast FTTP technology by 2020/21, up from 3m, and an ambition to pass 15 million premises by the mid-2020s, up from 10 million, if the conditions are right, especially the regulatory and policy enablers.”

Those infrastructure ambitions are laudable, and were echoed by Openreach CEO Clive Selley, but don’t seem to tally with previous statements on the matter. A year ago Selley said “This year we’ll double our FTTP footprint and by 2020, we will have built it to 3 million homes across the UK. We want to reach 10m premises by the mid-2020s, and believe we can ultimately fully-fibre the majority of the UK under the right conditions.”

So the mid-2020s bit is fine but the 4m promise now has a revised deadline of April 2021, a year and a quarter later than the previous 3m promise. Now we might be missing something here but rather than increasing the target, all BT/Openreach seems to have done is insert another milestone a bit further down the line, which feels a bit deceptive.

“In cut throat market like the UK, there are few opportunities to grow,” said telecoms analyst Paolo Pescatore. “Moves to accelerate plans for its fibre broadband rollout, 5G and cross selling existing services can help increase the group’s bottom line but also require significant investment. The lack of any significant shift in strategy is unsurprising as it’s still early days for Philip Jansen.”

BT is hardly alone in hedging any investment pledge, however vague, with the caveat that it all depends on the regulatory environment. At least it has stopped openly begging for public money, for now. But the barely adjusted capex outlook implies even that pledge is trivial and Jansen might need to test his own investors’ patience with a more aggressive approach once he’s fully up to speed.

Virgin Media rumoured to be considering Openreach competitor

Virgin Media is sitting firmly in the middle of the rumour mill, with reports suggesting the team is considering opening-up its network as a wholesale connectivity competitor to Openreach.

For the majority of ISPs in the UK, there is very little option aside from working with Openreach. This position lead to a prolonged battle between Openreach parent company BT and the UK Government in an effort to separate the wholesale business from the group, and while the dust has settled, most feel the outcome is rather unsatisfactory. However, according to The Telegraph, Virgin Media is considering creating competition in this segment.

Should the move turn out to be true, it would be welcomed by many of the ISPs around the country. That said, Virgin Media and its parent company Liberty Media are keeping coy on the situation.

“We have the best broadband network in the UK and everyone knows it,” a spokesperson said. “We’re not surprised by this speculation but have no comment.”

While it is a slightly playful comment which will bring a smile to some faces, the firm has stopped short of out-rightly denying the report. This might lead some to believe there is an element of truth to the reports, others will simply suggest this is PR 101.

Although Openreach is still in an incredibly dominant position when it comes to the wholesale business, pockets of competition are emerging. CityFibre is leading the charge here, using an injection of funds from Goldman Sachs to built on its fibre footprint across the UK. CityFibre now has fibre infrastructure projects across 51 towns and cities, providing active and dark fibre services, most notably to Vodafone which is building its presence as an ISP.

The idea of emerging competition does seem to be spurring the sluggish Openreach into action, as the team has announced one million homes now fall into its fibre footprint. Openreach, and BT as the guiding hand, has often been criticised for lack of foresight when it comes to connectivity. For years, the team pursued fortunes via G.Fast while the industry was demanding fibre, with this inaction perhaps creating the fuel for the emerging competition.

While CityFibre still has the tag of a plucky outside bet, Virgin Media would certainly provide more food for thought. With 14.4 million homes passed throughout the UK, roughly 50% of households, it is a genuine alternative for ISPs who have nationwide ambitions.

We suspect such conversations are taking place behind closed doors in the Virgin Media offices. The UK infrastructure wholesale market is certainly primed for a shake-up, and Virgin Media has the footprint to capitalise.

Openreach dares to contemplate retiring its copper network

UK fixed-line wholesaler Openreach has launched an industry consultation into the switch to ‘full fibre’, which would involve retiring the legacy copper one.

There’s not a lot of point shelling out for a fibre network covering the whole country if a bunch of people don’t use it. Furthermore the cost of maintaining two parallel networks would be prohibitive, so Openreach seems to be saying full fibre will only happen if everyone is fully committed to it. The purpose of this consultation seems to be to chuck that idea out there and see what the rest of the industry, including the government and Ofcom, has to say about it.

“…we’re consulting with broadband providers to decide how and when we upgrade customers to even faster, more reliable and future-proof, full fibre broadband,” said Katie Milligan, MD for Customer, Commercial and Propositions at Openreach. “We believe this consultation is crucial to that process, and it will support further investment from across the industry. We’re really ambitious about upgrading the UK to the fastest, most reliable broadband there is.”

These are the three main areas Openreach wants feedback from UK CSPs on:

  1. How it builds the new network
  2. How the industry should migrate customers smoothly onto the new network
  3. How Openreach should eventually retire the existing copper network

Getting buy-in from the CSPs is vital, of course, because they and their customers are ultimately the ones that will pay for this network. The above points are all essentially about money: how are we going to pay for this network and make everyone use it? On top of those Openreach flagged up a few more specific ‘guiding principles’ that also need to be considered:

  • Building contiguous footprints within its exchange areas to avoid creating new not-spots
  • Working closely with CPs to upgrade every customer in those areas quickly once the new network is built
  • Offering a compelling, simple portfolio of products that supports new retail voice and broadband services
  • Upgrading the large majority of people voluntarily, whilst developing an industry process for late adopters
  • Withdrawing copper-based services progressively
  • Developing a consumer charter with industry and Ofcom that encourages transparent communications to homes and businesses affected, and includes protections for vulnerable customers

In other words those pesky ‘late adopters’ would eventually be given no choice but to upgrade. This is what Openreach had to say about the copper situation: “The process would start with a ‘no move back’ policy for premises connected with FTTP, followed by a ‘stop-sell’ of copper services to new customers, and ultimately a withdrawal in full.”

It seems a bit authoritarian, but if the economics of maintaining the copper network don’t add up then it’s hard to what alternatives there are. The danger of forcing consumers to take a service is that CSPs could take that opportunity to over-charge, so Ofcom will want to keep an eye on that side of things. The government, as ever, will ride on the coat-tails of the process in its never-ending search for cheap political capital.

“We’re building a Britain that’s fit for the future, and our plans for a national full fibre broadband network underpin our modern industrial strategy,”  said Minister for Digital Margot James. “Upgrading to gigabit capable connections will benefit homes and businesses all across the UK. I welcome Openreach’s consultation on how to make this process as simple and efficient as possible whilst ensuring a competitive market is in place for all consumers and infrastructure providers.”

Openreach also recently announced Salisbury is going to become the UK’s first place to get FTTP across an entire town, which will be complete in April 2020. It seems to be setting this up as an exemplar of how great everything can be if we all cooperate on this stuff and reap the consequent connectivity rewards. This consultation will be open until 3 May, after which Openreach will let us know how it went.

Openreach creates 1.6k new roles to fuel fibre rollout

A sparkling new training centre in Peterborough and 3,000 fresh-faced trainee engineers, 1,600 of which are newly created roles, gives weight to the long-overdue fibre rollout ambitions of Openreach.

Peterborough is the second of twelve new or upgraded training centres across the UK as Openreach continues to scale with plans to hire an 6,500 engineers across the next twelve months. The full-fibre plans are starting to meet acceptable expectations, and it’s about time. Currently, Openreach employs 24,282 field engineers and last year hired 3,500 new engineers.

“Openreach’s publication of clear plans for where, when and how they will be investing in new fibre networks is an important step,” said UK Minister for Digital Margot James. “Long term commitments from the industry like this are very important for local communities who need this kind of guarantee on when they will be able to take advantage of the benefits that fibre can bring.”

“In the last year, we’ve learnt to build at high quality, and at a competitive cost,” said Openreach CEO Clive Selley. “This year, we’ll prove that we can build the network on a vast scale and connect customers seamlessly.”

For the digital economy to run at full pace, fibre connectivity is a must. Openreach are clearly reacting to this idea, though this is hardly novel. Selley and his slumbering cronies should have been aware of this years ago, unless the Spanish, French, Portuguese and Norwegians had access to a secret stash of research it wasn’t sharing with Openreach.

As it currently stands, only 6% of homes and business across the UK have access to full-fibre connectivity. However, this number has more than doubled between 2017 and 2018, according to Ofcom’s Connected Nations 2018 report. This might be progress though the UK should not consider calling itself a leader in the connected economy.

Looking at the full-fibre assault, Openreach is now (or will be in the near future) building in 25 towns, cities and boroughs across the UK as it drives towards its ambition of fibering-up three million homes and businesses by 2020. The team also plan to release figures every three months to increase transparency through the full-fibre rollout.

As part of the government’s Future Telecoms Infrastructure Review, the industry has been set a target to connect 15 million premises to full fibre broadband by 2025 and provide full fibre broadband coverage across all of the UK by 2033. Alongside the increased need to satisfy the connectivity appetite of the ever-demanding consumer, fibre infrastructure will be key to realising the 5G dream.

“Access to fibre broadband is particularly key for UK businesses in the run up-to Brexit, as companies come under even more under pressure to deliver on a global scale,” said Phil Sorsky, VP International Sales at CommScope. “With that in mind, it is critical that everyone across the country has the same access to the opportunities enabled by connectivity.”

Progress is being made, albeit at a slow pace, but at least the UK is staggering towards the finish line.

CityFibre bags £1.1bn for nationwide fibre rollout

During yesteryear, CityFibre was known for moaning for the sake of moaning, but in securing a debt package of £1.12 billion, the firm’s ambitions are starting to look very real and very interesting.

Seven banks have financed the transaction, ABN AMRO, Deutsche Bank, Lloyds Bank plc, Natixis, NatWest, Santander and Société Générale, which will serve as the first installment of CityFibre’s £2.5 billion commitment for a nationwide fibre rollout. CityFibre has given itself a target of providing fibre to five million homes, a third of the Government’s target of 15 million, by 2025.

“The appetite from these institutions to support our financing is further evidence that CityFibre’s strategy is the right one for the UK,” said Terry Hart, CityFibre’s CFO.

“As our networks are rolled out, this will benefit everyone, driving innovation and increasing fibre penetration across the UK, providing the future-proof digital connectivity the UK needs. CityFibre’s target to reach five million homes by 2025, as well as thousands of businesses and public-sector sites, will catalyse huge economic growth in regional towns and cities across the country.”

CityFibre made it abundantly clear in its statement that this is an endorsement of the firm’s business model from heavy hitting financial institutions, and perhaps it does indicate a change in attitudes from investors.

Back in October, we attended an investor panel session at Broadband World Forum featuring the likes of the European Investment Bank and also Amber Infrastructure, a specialist venture capitalist firm. The message was clear from this panel session; investors are increasingly happy to fuel fibre rollouts as the business case has been justified and consumer demand has been validated.

This is where CityFibre sits. It doesn’t want to be a telco but become a serious infrastructure player. Owning the relationship with the consumer is of zero interest but creating a nationwide alternative to Openreach and becoming a connectivity wholesaler is the big picture. However, to be considered a viable alternative, there needs to be more of a presence than there is today.

Telcos don’t want to have a patchwork of relationships across a country to meet the connectivity demands. Multiple relationships create more overheads and more opportunity for something to go wrong. CityFibre has made good progress in rolling out fibre spines in numerous areas across the UK, but the gaps will have to be plugged if it wants to be a viable and realistic alternative to Openreach.

That said, CityFibre is looking like a business which has the right ingredients for a market which is primed for disruption. Aggressive ambitions, a head-strong CEO and the confidence of being owned by one of the world’s most powerful businesses. CityFibre is a very strong contender to make a genuine and permanent dent in the connectivity infrastructure game.

And a £1.1 billion investment from seven major financial institutions is a very good place to start.

Openreach talks fibre in Edinburgh

With fibre becoming an increasingly politicised topic, fixed infrastructure wholesaler Openreach decided to hang out with a couple of Scottish politicians.

Ian Murray MP and Daniel Johnson MSP got to hang out with some engineers in Liberton, a suburb of Edinburgh, where Openreach has been laying some serious fibre down. Specifically this is of the FTTP variety, which enables Openreach to use emotive phrases such as ‘ultrafast broadband’ and ‘future-proof technology’.

“Good connectivity is vital for a strong local economy, so it’s been great to hear about the progress that’s being made and what that means for constituents,” said Edinburgh South MP Murray. “The fact that Edinburgh is one of the first places in the UK to benefit from Openreach investment in full-fibre will help make sure that our historic city remains at the forefront of technology.”

“It was particularly interesting to hear about the huge difference a full fibre connection will make to residents’ broadband speed, reliability and capacity,” said Edinburgh Southern MSP Johnson. “It was also useful to hear about developments at Openreach’s training centre in Livingston where a new fibre school will be launched next year. Engineering is a vital part of Scotland’s economy and skills learned there will benefit the nation.”

Jim Wylie, Openreach’s fibre operations manager for Edinburgh, said: “We know good broadband is really important to local people and we’re delighted to be building our first fibre city here in Edinburgh.

“Ian and Daniel share our ambition to make sure everybody in Scotland has access to a quality broadband service,” said Jim Wylie, Openreach’s Fibre Operations Manager for Edinburgh. “We appreciate that they were able to make time to come and learn about the challenges and realities of delivering digital technology. For example, a specific issue in Edinburgh is getting access to put new equipment on telephone poles, which are often sited in people’s back gardens!”

So this looks like a win-win; politicians get to be seen to be championing next-generation infrastructure for their constituents, while Openreach gets to lobby them for a few juicy concessions. Result.

Ofcom officially releases BT from its Openreach undertakings

Measures BT undertook in 2005 to placate Ofcom over its wholesale operations are officially no longer relevant, so it doesn’t need to bother.

This seems to be a bit of a formality, since the legal separation of Openreach from BT is supposed to mean BT has no direct influence over the fixed line wholesaler. But at the very least it marks a milestone in BT’s relationship with Ofcom and gives Philip Jansen one less thing to worry about when he takes over next year.

The previous milestone was the official transfer of 31,000 staff from BT Group to Openreach at the start of this month. “This is an important day for Openreach as we’re fulfilling the commitments to Ofcom under the Digital Communications Review,” said Openreach Chairman Mike McTighe at the time. “Openreach now has its own Board, greater strategic and operational independence, a separate brand and an independent workforce – and we’re ambitious for the future.”

The long and short of it seems to be that Openreach now has a separate and distinct relationship with Ofcom and will be assessed solely on its own merits, with no BT baggage. This is probably good news for everyone and is ultimately what all this ‘legal separation’ business is supposed to be about. It should also protect Openreach from accusations of favouring BT. You can read the full statement here.

A possible manifestation of this new, unfettered Openreach may have been the announcement last week that it is dropping the price of full fibre broadband infrastructure to new homes by 75%. Openreach got a nice lot of kudos from public figures for doing its bit to improve fibre coverage, so job done there.

BBWF 2018: Chorus sings the praises of centralised infrastructure model

Yesteryears rumbling story was the enforced separation of BT and Openreach, and while this might have been nothing more than a thinly veiled show, Ofcom might look at the success of Chorus for future inspiration.

Down in New Zealand, Chorus is an example of what can be achieved through structural separation and effective centralised investment in broadband infrastructure. The business is rolling out fibre faster than many in the world, giving rise to a landscape which benefits the consumer and is remaining profitable in the meantime. Speaking at Broadband World Forum in Berlin, Kate McKenzie, CEO of Chorus, demonstrated just what is actually possible.

Back in 2011, Telecom New Zealand was completely separated into two legal entities; Spark for mobile and Chorus for broadband. Unlike the Openreach and BT separation, these are two entirely separate (and listed) businesses, both of which are proving to be a success.

Fibre broadband penetration is at roughly 70%, with the team targeting 87%. Ubiquitous penetration would be perfect, but due to the at times harsh environment in New Zealand, it is just commercially impossible with today’s economics. New Zealand might be a small country, but the environment is incredibly varied and population density can be a nightmare. Technology is now the third largest contributor to the economy, accounting for 8% of GDP, and is steadily growing. The country now even has its own space programme, and fibre penetration has been heralded as part of this success.

“Coming up with a plan and sticking to it is key to success,” said McKenzie. Sensible regulations, consistent government policy, an understanding of consumer demand, as well as a vigilant board to keep a close eye on costs and returns, are needed to create a successful centralised infrastructure model.

The only suspect outcome is the 90+ service providers in the market. This might be great for the consumer, but it is not sustainable. Barriers are entry are almost none existent allowing anyone to get involved, but numerous of these businesses will fail due to the cut throat nature of competition. However, there certainly are some interesting models. One example is energy companies bundling energy and broadband services together.

Of course, there are dangers of centralising so much spending. Without a resilient and robust regulatory framework, the monopoly could be abused. Australian broadband providers are supposedly feeling the sting of NBN’s dominance with Telstra complaining wholesale rates are double what they should be. The political agenda also needs to be quite stable, as too much interference or changes from different government administrations could cause disaster.

Despite the negatives, New Zealand seems to have struck the right balance. Perhaps this is a country Ofcom should have a close look at. BT might have resisted (and will obviously continue to do so) pressure to remove Openreach from its business, but under the right conditions, New Zealand has shown the great benefits which can be realised for the economy and the consumer.

Sky strikes an ultrafast deal with Openreach

Sky UK has reportedly become the first customer of a new discount deal from Openreach to encourage use of Gfast technology.

According to the Telegraph, fixed line wholesaler Openreach has been offering discounts of up to 40% to entice ISPs to use its Gfast products. Gfast extracts more bandwidth from legacy copper infrastructure, of which Openreach has loads, and is therefore a lot cheaper to provide that fresh fibre.

In typical ISP over-marketing style, this Gfast service is being packaged as ‘ultrafast’, which is one order of magnitude faster than superfast. It’s not obvious where we go from there. Megafast? F*ckingfast? Sky is apparently also signing up for fibre, where it’s available, which will be marketed as OMFGfast.

The Telegraph piece indicates UK ISPs are conflicted about even offering faster broadband to their customers as slower service apparently provide more margin, which is depressing. Ofcom has been hassling Openreach to cut its process but if current prices still disincentives ISPs from trying to improve their offering then it looks like the UK broadband market is still somewhat dysfunctional.

Here’s a recent Openreach video about how great Gfast is.