Residents know who to blame. For several days, stretches of Garratt Lane in Wandsworth have been hacked apart, exposing concrete innards and utility arteries to the open air. G.Network is emblazoned on the sky-blue barriers that alert drivers and pedestrians to the operation. "100% fibre broadband," it promises.

For now, it is also 100% disruptive, but local home-office workers, TV addicts and gamers might quickly forgive that. G.Network is investing more than £1 billion (US$1.4 billion) to connect about 1.4 million London homes to high-speed connectivity. Its service, insists the company on its website, is about 13 times faster than the London broadband average.

Scenes like the one on Garratt Lane are no longer unusual across the UK. Just a few years ago, full-fiber connections were harder to find than toilet roll in a pandemic. The UK, which did so well on the first phase of copper-based broadband, was a fiber joke to the European leaders. Suddenly, infrastructure investors are queueing up to fund fiber rollouts. Literally dozens of digs are underway.

Figure 1: Road and sidewalk closures due to fiber rollout are now commonplace in the UK.

Interest is partly but not entirely linked to the pandemic, which made broadband a necessity for people confined to their homes. In parallel, surging demand for smart TVs, Fortnite-style games and other high-speed applications is overwhelming the capability of part-copper lines. A certain class of investor now regards fiber as a safe long-term bet – a dependable source of returns.

But not all this fiber will be used, meaning some of the construction is wasteful. BT alone plans to cover about 25 million of the country's roughly 30 million households with its full-fiber network by 2026. Virgin Media O2 (VMO2), the UK's second-largest infrastructure investor, says it will extend fiber to all the 15.5 million homes in its footprint by 2028. CityFibre, the private equity-backed number three player, is targeting 8 million premises by 2025.

Add G.Network and other local builders and there is significant likelihood of overlap, or what the industry prefers to call "overbuild." A home served by three fiber lines would only have need of one, and so the others would lie dormant unless the customer changed service provider. BT will have overbuilt 25% of VMO2's footprint by the end of the year, said Mike Fries, the CEO of Liberty Global, VMO2's parent, on a call with analysts last week.

Similar game, different rules

The race has therefore started to sign customer deals and gain any kind of competitive advantage. Losers are likely to be swallowed up in rounds of consolidation. As the national incumbent and only investor with a nationwide plan, BT and its Openreach networks division are confident of winning but unsure by how much.

"The practicality is that given the scale of our current footprint – 29 million homes on superfast – and our build program on ultrafast we will have the biggest FTTP [fiber-to-the-premises] network in the land and we'll have more customers connected to it than anyone else," said Philip Jansen, BT's CEO, on last week's earnings call. "If FTTP were a football match, we don't know the score, but we know we're going to be the winner."

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Conceding too many goals could badly hurt BT. In the old copper days, it was effectively the only wholesale option for broadband retailers such as TalkTalk. This historical position explains why its broadband business is so large – connecting about three quarters of the nearly 28.9 million premises it passed at the end of September.

But full fiber accounted for just 5.8 million of the homes passed and 1.3 million of the connections. If the entire market eventually moves to fiber, the gaps between the fiber numbers and the overall numbers represent the field of play. The final score is where the figure ends up. Unless Openreach retains the vast majority of its roughly 20.3 million non-fiber connections, BT sales would inevitably fall.

Reasons for BT confidence

Jansen has a few good reasons to be confident. For starters, BT has now managed to sign ten broadband retailers up to long-term pricing arrangements, including the big names of Sky and TalkTalk. While these contracts do not include any volume commitments, BT's retail clients do agree to sell mainly full-fiber services to their end customers. "The transition away from copper is accelerated and that makes it harder for other people to take up volume on other platforms," said Jansen.

Monthly wholesale rates for gigabit services are also extremely low, he says. "The wholesale pricing for one gig is £22, which would lead to a £44 retail price. If you look at the marketplace, that is very, very competitive. I know that other people will struggle to beat these prices and make acceptable returns."

On the expenses side, Openreach now thinks it can reduce the average cost of passing a home by 15%, to between £250 and £300. Executives clearly believe that rivals without Openreach's assets, experience and national scale will not be able to reduce costs to this extent. "It is unambiguously a competitive advantage," said Simon Lowth, BT's chief financial officer.

Figure 2: BT's share price (pence sterling) Source: Google Finance

Having previously cited a cost-per-home-passed figure of £500, CityFibre was unwilling to provide an update when approached by Light Reading. The figure has been falling, however, and there could be another reason it is higher than BT's latest estimate. Home passed does not mean fiber has been taken all the way to the customer premises, and some operators pass closer than others. The further away that point, the costlier and more complex the final installation.

What's more, VMO2 has cited an even lower figure than BT of £100 per home passed. Asked by email about the difference between that and BT's earlier figure of £300 to £350, a VMO2 spokesperson said the cable operator had a "younger, fully ducted network" and that BT was still reliant on poles for some lines. The incumbent telco also "has a larger number of distribution points (which fiber needs to be built to)," he added.

For all the operators, the final bill will probably not become apparent until installations have been done. In the meantime, Openreach is under pressure to pass homes before its rivals show up. Having built at a rate of about 2.5 million premises annually, it expects to peak at about 4 million in the next couple of years.

"There is a hypothetical possibility of a wholesale change with volume customers moving to someone else, but the chance decreases massively as we continue with our plan," said Jansen.

Investors have welcomed his guidance for lower costs, better profitability and a resumption of the dividend that BT suspended last year. Its share price has gained 12% since November 3, the day before BT published its latest results. A more lackadaisical, half-hearted effort might ultimately have cost BT its role as the UK's main infrastructure player. The big question now is how much damage its competitors can do.

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— Iain Morris, International Editor, Light Reading