A tale of broadband tariffs and take-up

The UK is moving into the next phase of mass technology deployments with ‘full fibre’ as the primary goal for most interested parties.

The market has also changed with infrastructure competition as the preferred mechanism to promote consumer choice, competitive pricing and a path to high penetration and take-up of an increasingly vital utility.

One task all operators need to consider is to what extent they wholesale to others, do they compete on a retail level with big players with large budgets and how to sell the services, not just bandwidth but the bits too, that make up a profitable customer base.

We take a look at the past and the options that were selected in the past to help understand what has been effective and what pricing has been used with success and failure in the UK and France.

Connecting Britain – broadband today and tomorrow

Fixed broadband penetration in the UK stood at 86.8 per cent of households at the end of 2018, up from 85.4 per cent in 2017. DSL technology stood at just over 9.5 million connections at the end of 2018 compared with over 11.4 million in 2017. Total cable modem lines were estimated at nearly 5.23 million. FTTx technology accounted for over 11.87 million lines, which includes FTTC, FTTB and FTTP. Our estimate for fixed wireless access connections was 105,000 across the UK. Overall connections of 30Mbps and above represented 63 per cent of the country’s broadband market.

The UK Government has set a target to build a country-wide full fibre network by 2033, with 15 million premises connected by 2025. The overarching approach is to promote commercial investment by encouraging a competitive market to build fibre infrastructure. The Government believes that with policy reforms and targeted regulatory intervention in some areas, private investment should be able to deliver full fibre to 90 per cent of premises, with the remaining 10 per cent requiring further public funding.

In May 2019 BT Group announced that its FTTP build targets had increased from three to four million premises passed by March 2021 and that its longer term ambition had increased from 10 to 15 million by the mid-2020s, subject to the right conditions. Openreach had passed around 1.2 million premises with FTTP by end-March 2019. Based on self-reporting the alternative network operators collectively reached 1.29 million premises, the majority with full fibre, by the end of 2018/early 2019. Virgin Media added 102,000 marketable Project Lightning premises in Q1 2019 of which 86 per cent used FTTP technology. Its footprint now passes 14,510,700 premises.

Meanwhile, the Vodafone Gigafast rollout in partnership with CityFibre was live in five cities as of May 2019 with a further seven cities due to go live over the next year. We estimate the FTTP footprint is 50,000 premises. TalkTalk has a plan to roll out FTTP to three million premises through independent company, FibreNation. Meanwhile, Kingston upon Hull’s incumbent KCOM says it completed its FTTP network covering 96 per cent of its addressable network area of around 200,000 premises by March 2019.

This increase in infrastructure providers will, in turn, have an effect on the retail market. Some new operators will offer full fibre services direct to end customers. Others will provide a choice of wholesale network services in some areas of the country to retail providers offering broadband, fixed and mobile telephony, and content packages. This potentially opens up the market, particularly on a more localised and regional basis, to tailored retail offers, especially in the business sector.

As the market gets more players the market shares, margins and profitability are all challenged.  We can see what effect the last round of mass technology upgrades had on the markets and some indication of the effectiveness or not of the strategies adopted.

NB All prices and costs in this paper are at Purchasing Power Parity rates ($PPP) as an aid to international comparison

Choice and risk – supporting a business model

Technology and differentiation.  Take-up and margins in transitional phases

Take-up is key to everyone’s business case and investment.  Distinguishing your service from others in an age of infrastructure competition cannot just rely on downstream speed as the banner headline or technical arguments, however justified, around precise definitions of technologies and terminology.

The life cycle of a (new entry) ISP/network operator can be (broadly) represented by three stages:

  1. Dig holes and get funding or organise your ‘virtual’ contracts and market access
    1. Are your take-up projections valid? Are they based on cherry-picked consumers with a steep take-up path?
  2. Drive take-up
    1. It’s you versus the rest. Why are you better?  Is it ‘full fibre’ and/or service oriented?  If you’ve dug your own holes and filled them how do you compete against the other wholesalers and retailers?  What makes you different for a consumer who doesn’t want to understand the technologies and the ‘education’ you offer them.
      1. Hearing the word education a lot at the moment. The consumer doesn’t understand my product is something we’ve all said…try selling complex modelling data
    2. Continue or exit. Are you there to generate revenue or do your investors want a five-year return with an IPO or take-over?

Evidence shows that unless you are very careful about your footprint, you can suffer significantly lower adoption than projections in your business models.


The full version of this report is included in Point Topic’s UK Plus service. Please contact Simona Pranulyte on +44 (0)20 3301 3303 or e-mail simona@point-topic.com for more details

Table of Contents

  • Introduction
  • Connecting Britain – broadband today and tomorrow
  • Choice and risk – supporting a business model
    • Technology and differentiation. Take-up and margins in transitional phases
    • Selling broadband – speed, service and price
  • Standalone or bundles? What do the time series tell us?
  • Copper, cable or fibre?
    • Average Monthly Subscription – what number do you use in your models
  • Conclusion