The UK fibre market is undergoing a major shift, marked by a wave of mergers and acquisitions that are reshaping the landscape. As the market matures, altnets (alternative network operators) face the challenge of low take-up rates and the need to offer more than just basic connectivity to stay competitive. This article explores recent research on UK and European fibre take-up rates and what these findings mean for the UK fibre industry. We explore the strategic opportunities available to altnets, focusing on how they can enhance their service offerings, differentiate themselves in a saturated market, and navigate the uncertainties of consolidation.
Profound Implications for the Survivability of Altnets
We have written previously that the UK telecoms market is experiencing a significant transformation - a "shakeout" - characterised by a wave of mergers and acquisitions (M&A); as the UK fibre market transitions from growth to maturity, inefficient or weaker operators are beginning to exit, consolidate, or be acquired. This shift has profound implications for the survivability of altnets.
A significant factor in the survivability of altnets is the number of customers or subscribers they can attract i.e., the "take-up rate," which is the percentage of subscribers over the number of fibre premises passed. This metric is crucial because it determines how much cash they will make for their investors.
Amidst this backdrop, altnets face another significant challenge: the need to move beyond transactional connectivity services and create real value for customers to remain relevant and to attract market share.
Market Data and Emerging Trends
A recent INCA report highlights the fibre take-up rate among UK altnets as 15%, significantly lower than the national average of 30%. In contrast, countries like Spain boast take-up rates as high as 86%, according to data from the Fibre to the Home (FTTH) Council. This disparity underscores the potential and challenges facing the UK fibre market, especially as it seeks to increase penetration rates and move beyond traditional service models.
Fibre Operators Must Expect a More Realistic Take Up
The UK market presents unique challenges and opportunities for fibre operators.
The first observation we make from the above chart is that the take-up rate for Superfast Broadband in the UK is estimated at 74% which may represent a natural ceiling for fibre adoption in the UK. Achieving an 86% fibre take-up, as seen in Spain, seems unlikely without significant changes in market strategy and consumer behaviour, and possibly further government intervention.
Second, if UK fibre operators were each to reach the Superfast Broadband take-up estimate of 74%, it would result in 1.84 live fibre connections per home; this assumes a take-up achieved across the top 10 altnets, BT and Virgin Media based on their previously forecast build plans. Achieving this level of active fibre subscriptions per home per operator is clearly not plausible. A very clear implication here is that fibre operators must expect a more realistic take up rate.
A more realistic scenario anticipates a take-up per fibre operator of 30%. This assumes the number of fibre premises proposed by BT, Virgin Media and the top ten altnets remain as forecast and is based on achieving a 74% take-up rate across UK households.
A 30% take-up sounds more plausible than 74% and represents a significant opportunity for altnets given their current 15% take-up rate. However, this target must be set against the reality that BT and Virgin Media are already achieving above 30% take-up rates and are well-positioned to achieve higher penetration rates due to their substantial marketing budgets, existing customer bases, and ability to cross-sell bundled services such as content, enhanced in-home experiences, and mobile connectivity.
Altnets Must Explore Ultra-Targeting and Step Out of Their Comfort Zone
Given the likelihood that BT and Virgin Media will achieve higher take-up rates among their existing coverage bases, altnets may need to adopt more realistic coverage and build plans. Altnets can realistically aim to increase their take-up rates from the current 15% to around 30% by concentrating their build efforts in areas with less competition from incumbent operators. This ultra-targeted approach can reduce stranded assets and lead to higher penetration rates, aligning with investor expectations, ensuring a return on investment.
In areas where altnets are competing head-to-head with other altnets and the incumbents, they must look for strategic opportunities beyond basic connectivity and step out of their comfort zones to incentivise consumers to switch. To truly differentiate themselves, altnets must therefore offer services beyond basic connectivity that align with modern consumer demands for entertainment, network experience, and affordability.
Offering superior service quality minimising network drop outs (a very common consumer complaint) can help altnets stand out, building a reputation for reliability and customer care. By enhancing the Wi-Fi experience with superior solutions such as advanced routers and mesh networks altnets can address common pain points and boost customer satisfaction.
Furthermore, partnering with technology companies to integrate smart home capabilities—like home automation, security systems, and energy management—provides a lucrative opportunity to cater to the trend of smarter living. Additionally, developing innovative service bundles can create a compelling value proposition that drives engagement and brand loyalty.
The Stark Reality and Future Prospects
As the UK fibre market undergoes consolidation, altnets face significant challenges but also opportunities for growth. Although, given the above analysis, reaching a 30% take-up rate across their entire planned fibre build estate seems unlikely, altnets can position themselves strategically by focusing on ultra-targeted coverage areas and offering services beyond basic connectivity. By enhancing customer experiences through superior Wi-Fi solutions, integrating smart home capabilities, and developing innovative service bundles, altnets can attract more subscribers and meet investor expectations. The key to their future success lies in embracing innovation and differentiation, ensuring they remain competitive and relevant in an increasingly crowded market.
About Intelligens Consulting
Intelligens Consulting is a telecoms, digital and technology management consultant. By leveraging our expertise we help altnets navigate the challenges of the fibre market. Our Transaction Practice is well-equipped with senior industry veterans to provide comprehensive deal support for M&A activity. Our Telecoms Practice can assist altnets in enhancing their take-up rates by identifying areas with less competition, optimising build plans, and developing innovative service offerings that go beyond basic connectivity.
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