UK fibre deep-dive

Not all networks have been rolled out equally. So how do we evaluate an altnet’s network roll-out strategy and how does this play into today’s commercialisation challenge?

One of the consequences of the early race for THP growth was, for some altnets, a higher tolerance for competitive network overbuild (i.e. altnet on altnet overbuild). With Openreach’s ambition to cover 25m homes and businesses with full-fibre by 2026 and 30m by the end of the decade, altnets fully expect to be overbuilt by Openreach (with the exception of ultra-rural, subsidised areas) and account for this within their Business Plan take-up assumptions (i.e. through a lower terminal penetration). It is widely accepted that altnets can become highly profitable businesses irrespective of overbuild by Openreach. Interestingly, recent in-house research by Community Fibre has provided a first counter view to the long-held narrative that altnet take-up is negatively impacted by Openreach full-fibre overbuild, finding that in areas where its network had been overbuilt by Openreach customer take-up has in fact accelerated. It is understood that this is due to the indirect benefit of other ISPs full-fibre marketing campaigns driving awareness of the benefits of the technology, and subsequently winning these informed customers with its highly competitive retail offering. 

However, across the UK we are seeing areas where altnets have overbuilt one another. For example, it was reported last year that in Braintree there are now five full-fibre networks overbuilding each other⁴! Not only does this have consequences in a consolidating market, it also inevitably acts as a blocker for each altnet to secure meaningful take-up in these areas. Altnets succeed when they act as market disrupters competing against incumbent national broadband providers with their differentiated offering. While a 25-35% long-term retail penetration is considered achievable when competing only against the incumbent providers, where two altnets are also competing against each other, these take-up levels become extremely challenging, if not impossible, to achieve. Fortunately, there remains ample greenfield areas for altnets to target and we are observing the level of new overbuild amongst altnets reducing. However, historic overbuilt deployments will continue to put pressure on altnets seeking to improve customer take-up and will remain a structural issue over the medium- to long-term. 

Beyond the overbuild consideration covered above, altnets’ roll-out strategies can also vary substantially in terms of adopting a regional vs. national focus, a “whole-town” vs. “partial town” approach, level of own build vs. Openreach duct & pole usage, and importantly also the geotype (e.g. rural, semi-urban, urban). While these strategies have their own merits, each also has an implication for the altnet’s ease of commercialisation and go-to-market approach. As an example, while a whole-town approach to build (i.e. rolling out full-fibre to the majority of homes in an area) may have implications on overall roll-out costs, it should enable a more efficient go-to-market approach through more effective use of door-to-door sales representatives, customer referrals, and digital marketing. This in turn should translate into a lower customer acquisition cost (“CPA”). Additionally, it reduces the risk of confusion and frustration from residents on who can and cannot access the altnet’s service (e.g. if an altnet creates a disjointed “patchwork” of serviceable premises on a housing estate). We are seeing more instances of altnets now growing their network through densification of existing areas, rather than expanding to new areas, in part with this consideration in mind.

4 https://www.ispreview.co.uk/index.php/2023/11/braintree-first-uk-town-with-5-full-fibre-networks-overbuilding.html

As new entrants into the market, altnets have little track record for potential customers to base their decision-making process on. Market research shows that for a sizeable share of customers, reliability of service is a key motivator for staying with their existing supplier (or switching to an incumbent provider) rather than switching to an altnet (i.e. “better the devil you know”). Here, customer satisfaction sites like Trustpilot can play a key sales and marketing role, acting as a badge of reliability for an altnet that helps differentiate them from the national incumbents and positively influence customers’ purchasing decisions. Altnets should all be focused on actively managing their Trustpilot scores to drive up and maintain an ‘Excellent’ rating.

Since the process to connect a full-fibre service is more involved compared to traditional switching between services on Openreach’s legacy network, managing the customer experience throughout this process is critical. In the normal course, the majority of positive and negative Trustpilot reviews are also submitted during this onboarding process. Here, several factors come into play that affect the customer onboarding experience, from the systems used for appointment booking, to the installation comms. shared with the customer, through to the build quality itself affecting the installation success rate. We observe a clear link between the level of investment in this key customer touchpoint and an altnet’s Trustpilot score, and by extension their commercialisation success. It is our view that altnets should be over-indexing on the investment and activities required to ensure a positive customer onboarding experience today, even if this introduces near-term inefficiency and incremental costs. 

It is worth noting that, while we have focused on the customer onboarding journey here, the logic applies equally to any subsequent customer touchpoints during the customer lifetime, such as if they experience any service issues, billing, renewals, etc. Altnets who do this well will be in a strong position to grow their share of customers.

Indeed, the initial “build it and they will come” mindset held by some investors has long since been shattered. In reality, even with supportive market tailwinds, establishing a clear brand, differentiated proposition, and efficient sales & marketing engine requires a significant amount of time and financial investment.

Appreciating that this represents an oversimplification, we broadly consider an altnet’s GTM strategy as “what am I offering?” and “how am I selling it?”. 

Focusing first on the “what am I offering?”, altnets need to develop a clearly defined point of differentiation from the incumbent national broadband providers (from whom they are principally winning customers). This differentiation can come in different forms, such as the service offering, product pricing, brand positioning (e.g. local/regional champion), etc. We observe those altnets that are struggling to commercialise their networks as those that are yet to fully carve out their “point of differentiation”.

Secondly, when it comes to “how am I selling”, it’s important to be transparent that altnets cannot outspend the incumbent national broadband providers to generate sales. 
Here, altnets need to be clever in their approach to sales, leveraging their lean organisations and access to data-driven insights to quickly adapt and iterate their GTM approach to ‘learn fast’ and drive continuous improvements in take-up and CPA. Altnets can be more experimental, fail fast, learn fast and try new approaches. Ensuring access to performance data and overlaying demographic data and feedback from in-person sales personnel to constantly refine the go-to-market approach is crucial. For many altnets, to access this level of insight they will need to address the historic under-investments in their people, processes and systems. These investments can be costly and time-consuming to develop and typically require in-house expertise. As such, for those that are particularly funding constrained, this may prove challenging to implement and will be a limiter of growth.

Additionally, given recent media coverage on challenges for altnets erecting new poles, it is worth highlighting the role of pre-build engagement with residents and the local community. This should make use of community events, door knocking, and digital media to positively engage local residents and secure buy-in for the build (particularly if new poles are required, which can be deemed as an ‘eyesore’ within communities). This also serves as a key moment to drive registrations of interest (“ROI”). It goes without saying, but from the point where a local community raises complaints to the media or their local MP, it is a steep uphill battle to then win them over as customers!