RE: Telegraph Article22 Mar 2023 08:35
Around £20bn of pension funds, sovereign wealth money and private equity money has been poured into the ground beneath the streets of towns and cities up and down the country, according to the Independent Networks Cooperative Association, a lobby group – the large majority of which may never be recovered.
The responsibility for the mess ultimately lies with Ofcom for so actively encouraging this land grab in the first place. More than 100 newcomers were persuaded to pile in on the basis of a promise that couldn’t be delivered.
True, the demand for faster and more reliable broadband exists, but the flood of providers meant the market quickly became saturated. Virgin media O2 boss Lutz Schuler has estimated that Britain’s broadband plans are in line with a population triple the size of the UK. Some areas could end up with as many as six or seven by the end of the decade. There was never a need for this much fibre.
The model was predicated on too many flawed assumptions. There was an expectation that the major retailers would be willing to work with multiple providers, signing up to a new network in one area, and another in a second area, and so on.
But a company like Sky really only cares about having a super reliable service and minimising costs. Jumping to a tiny network would mean having to build completely new customer service capabilities, among other things.
What the regulator also failed to spot was that the space race was being fuelled by cheap money in search of secure, long-term returns but spiralling interest rates have wrecked the chances of the economics ever stacking up.
Financing is no longer cheap and it is even harder to make money. The cost of building broadband networks is now much higher than it was 12 months ago with the price of energy, labour, and materials all rocketing.
There will be the odd survivor. Industry figures point to Hyperoptic, which has targeted blocks of flats, as well as providing the service, which is much harder than simply digging holes. Another is Gigaclear, which focuses on isolated rural areas that BT may be more reluctant to venture into.
Ofcom has also failed to create a level playing field – rivals complain that the regulatory environment has remained far too favourable to BT.
But the biggest mistake that everyone made was under-estimating BT’s willingness to defend its position. The challengers assumed they could build more quickly and BT wouldn’t follow them into areas where they had already planted a flag. But instead of sitting back, the company has turbocharged its own plans with a £15bn programme to reach 25 million homes by 2026, in many cases simply “over-building” by putting in its own line next to those already there.
So in that sense, Ofcom can perhaps claim to have accelerated BT’s plans. But if at the end of all this, there are still only two network operators, then surely Britain’s broadband experiment will be regarded as a colossal failure.
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