Outgoing BT chief Philip Jansen has a favourite mantra: “Build like fury”.
Jansen has used the phrase repeatedly amid a furious race to roll out full-fibre broadband across the UK. Boris Johnson fired the starting gun on the dash with a promise to reach every home in the country by 2025.
The target not only triggered an investment surge by BT but also sparked the creation of a raft of new challengers that have cropped up to build their own rival networks.
The goal of full coverage by the middle of the decade was always a stretch. The original promise has been watered down to a target of 85pc, while the promise of full-fibre connections has been replaced with the more forgiving term “gigabit capable”.
Under current plans, full coverage – defined as 99pc of the UK – should be achieved by the end of the decade.
Now, however, a darkening economic backdrop is casting fresh doubt on the plans. Surging interest rates have sparked a financial crisis among debt-funded challengers, while inflation-busting price rises have left many consumers wondering if they will be able to afford their bills.
According to the latest data from Think Broadband, 79pc of households now have access to gigabit-capable connections, meaning the UK is on track to hit its interim target of 85pc coverage by 2025.
But there is less certainty over the later stages of the plan. The Government has committed £5bn to help reach the final segment of the population, whose rural locations make it difficult and expensive to connect.
Many of these contracts have already been handed out to alternative providers – known as “alt-nets” – but a potential wave of business failures could put this target under threat.
Spurred on by low borrowing costs, alt-nets launched debt-funded efforts to connect British homes and compete with BT.
Yet it has not been straightforward. The competition has made overbuild – where several providers build networks in the same town or city – inevitable, harming uptake. Rising costs as inflation has run riot have also taken their toll.
Most damaging, however, has been the recent surge in interest rates, which has driven up the cost of servicing debt.
This drove a near doubling in Cityfibre’s losses to £210m last year, while Hyperoptic’s losses ballooned 60pc. Both companies have been forced to cut jobs.
Others, including London-focused Community Fibre, have been forced to slow down their build plans and focus on connecting customers to existing infrastructure instead.
The crisis has fuelled predictions that only a handful of players will survive. Dana Tobak, chief executive of Hyperoptic, has admitted it is “inevitable that some will fail and some will make it”.
Mike Fries, boss of VMO2’s parent company Liberty Global, has gone further, saying only VMO2 and BT will ultimately be left.
BT’s Jansen has said the former monopoly is “ready and waiting” to step in.
Inevitably, the comments have ruffled feathers. One source complains that the big incumbents’ “only objective is to undermine infrastructure competition”.
Yet it is more than just talk. Ofcom is drawing up plans for a “supplier of last resort” regime, similar to that seen in the energy sector, to ensure there is no disruption to broadband services if providers start to collapse.
James Barford, an analyst at Enders Analysis, says alt-nets are under “a lot of pressure”, adding that consolidation is “widely expected”.
While Ofcom is understood to be drawing up contingency plans, it has said these are not specific to any individual company.
Matthew Howett, founder and chief executive of Assembly Research, argues that one of the key purposes of alt-nets has been to push Openreach to build its own network more quickly.
“That dynamic has played out already, it’s happened… so I think once they’ve lit that firework the vast majority of Project Gigabit will happen,” he says.
Barford adds: “Getting to full coverage is something that is already requiring government intervention and it’s not quite clear if we’ll get there by 2030 or shortly thereafter.”
Problems do not lie only with providers – surging costs have also been felt by consumers.
Telecoms companies raised bills by as much as 15pc in April and further inflation-busting price rises are expected next year.
Consumer group Which estimates that telecoms providers will rake in almost half a billion pounds in 2024 from mid-contract prices rises on mobile and broadband bills alone.
There are growing concerns that this could impact take-up. New figures from Ofcom show 7pc of UK adults do not have access to the internet at home, with a quarter of these people blaming high costs.
This rose to more than a third for the lowest socio-economic groups.
The issue of affordability is a key consideration for Ofcom, which is tasked with protecting consumers.
The regulator has opened investigations into inflation-linked price rises across the industry, as well as whether mobile and broadband firms have been upfront enough about how much they charge. The findings are in the coming weeks.
“The broadband market is not growing as fast as you would expect it to, as fast as it has in the past, and the cost-of-living crisis probably has something to do with that,” says Barford.
He adds, however, that the slowdown is also because of a surge in demand during the pandemic and says telecoms prices overall remain affordable.
It is not just a question of prices, though. Broadband providers will also need to convince consumers of the benefits of full-fibre broadband.
“Our research has shown that people don’t always understand the benefits of full-fibre and don’t want to pay more for their broadband,” says Rocio Concha, director of policy and advocacy at Which.
“The Government should be mindful of this, alongside other take-up barriers, as it pushes ahead with achieving nationwide gigabit-capable broadband.”
As costs continue to rise, broadband builders are running the risk that their gamble may not pay off.
A government spokesman insisted that the full-fibre rollout was “on track”.
They added: “We are supporting suppliers of all sizes to roll out their networks extensively, and we monitor the market closely to ensure people across the UK can get the connectivity they need for decades to come.”
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