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TalkTalk's Small Fiber Beginnings

TalkTalk is desperate to prove that -- despite its name -- it isn't all hot air.

In April, the UK broadband operator unveiled an ambitious plan with partners BSkyB and CityFibre to build an ultra-fast broadband network in the city of York and cross swords with BT in the market for fiber-based services. Amid doubts about the consortium's ability to seriously challenge the fixed-line incumbent, Charles Bligh, TalkTalk's managing director, has been eager to silence his critics. "We're putting our money where our mouths are in doing this," he told attendees at the recent Ultra-Broadband (UBB) Forum in London.

Like other companies that rose to prominence when copper local loops were being unbundled, TalkTalk is miffed that authorities have not been tougher on BT when it comes to fiber. Earlier this year, it complained to Ofcom, the UK's telecoms regulator, that BT's wholesale prices are too high for it to make a profit in the fiber retail market. So far, however, BT has dodged more punitive rules, passing 'margin squeeze' tests that Ofcom has recently carried out.

Along with BSkyB, then, TalkTalk has a clear incentive to build its own fiber access network and sever some of the ties that bind it uncomfortably to BT. Piggybacking on a metro network owned by CityFibre, TalkTalk and BSkyB are each investing £5 million (US$8.1 million) in the development of fiber-to-the-premises (FTTP) technology that will connect some 20,000 homes in York. The two operators -- each of which will own a third of the joint venture, with CityFibre controlling the rest -- intend to start offering commercial services at speeds of up to 1 Gbit/s in 2015.

Even so, Bligh is under no illusions about the difficulty of the task ahead. TalkTalk has no prior experience of digging up streets, as he acknowledged at the UBB Forum, and it will need to contain costs and capture plenty of new customers if the venture is to succeed. In blunt terms, if the cost per home passed rises above £500, or fewer than 6,000 homes (30% of those covered) take up an FTTP service, the project may be in jeopardy.

This subscriber target looks particularly challenging. In Cornwall, where BT has been deploying fiber in partnership with the government, the take-up rate was reported to have hit 25% of homes passed in April, and TalkTalk could encounter fiber competition on several fronts. Even if 6,000 homes took up a fiber service, the cost per connected home would be an eye-watering £1,667. Moreover, in the retail market, TalkTalk will have to lock horns with joint venture partner BSkyB as well as wholesale customers attracted to its rates, which will presumably undercut BT's.

Yet there are factors working in TalkTalk's favor. For a start, CityFibre's existing "metro layer," as Bligh describes it, should allow the joint-venture partners to roll out their FTTP network relatively quickly. TalkTalk's research also indicates there is considerable enthusiasm in the local community and, indeed, the political arena for high-speed connectivity. Above all, perhaps, TalkTalk has years of experience in marketing itself as a broadband alternative to BT, reporting six consecutive quarters of revenue growth despite difficult circumstances.

But TalkTalk is not planning on stopping at York. "Our aim is very much to get to between 50% and 60% of UK households with this rollout over time," said Bligh at the UBB Forum, and the operator has previously flagged plans to launch FTTP services in two other cities (whose identities it has yet to reveal). Far from being a mere thorn in the side of BT, the move by TalkTalk, BSkyB and CityFibre "strikes at the very heart" of the incumbent, according to market-research firm Enders Analysis, "much… as BT struck at the heart of Sky in bidding for sports rights."

In Spain and parts of Eastern Europe, incumbents' unwillingness to offer affordable wholesale products has already given a spur to infrastructure-based competition. Could the same thing be happening in the UK? Right now, the York scheme may not sound like much, but -- to borrow a famous movie line -- big things have small beginnings. (See Fiber Sizzles in Spain as Orange Targets Jazztel and Eastern Europe's Flourishing Fiber Scene.)

— Iain Morris, Site Editor, Ultra-Broadband

mhhf1ve 10/4/2014 | 10:45:35 PM
Re: Speed stakes I think it also remains to be seen whether or not customers are really that price sensitive at service levels of 800-1000Mbps. Esp when these speeds won't necessarily be guaranteed.
iainmorris 10/4/2014 | 5:19:17 PM
Speed stakes Other thing to note here is that TalkTalk may be able to market a speed advantage over BT with a 1 Gbit/s service, although BT is claiming that G.fast would boost connection speeds to 800 Mbit/s - which is close - when used with fibre-to-the-distribution-point networks.
iainmorris 10/4/2014 | 3:13:40 PM
Re: Digging up streets Yes, there is the option of using poles and masts for fiber rollout in some areas and avoiding the civil-engineering costs of digging up streets. TalkTalk is certainly doing some digging, though, according to Bligh, so it musn't have this option in York (or parts of it).
iainmorris 10/4/2014 | 3:10:52 PM
Re: Digging up streets I guess it really depends on which side of the fence you sit and BT isn't considered to be acting unfairly by Ofcom at the moment. However, Ofcom is reported to have said that BT's wholesale/retail pricing is "close to the boundary" of putting a squeeze on its rivals so there is obviously some concern within the regulatory organization about the incumbent's behavior.
mhhf1ve 10/3/2014 | 9:59:30 PM
Re: Digging up streets Aha. Iainmorris beat me to the quote. 

I'm not well-versed in the Ofcom rules on fiber loops... anyone want to explain how BT isn't playing nicely in more detail? I thought the UK had settled its "net neutrality" issues, but maybe only for copper lines?
mhhf1ve 10/3/2014 | 9:56:24 PM
Re: Digging up streets That movie quote is either from Lawrence of Arabia.. or Prometheus?

Do they really need to dig up streets? I think Google Fiber avoided that route, but then the existence of telephone poles might not be the same in the UK....



iainmorris 10/3/2014 | 5:39:34 PM
Re: Digging up streets Lawrence of Arabia - also shows up in Prometheus (in reference to Lawrence of Arabia)!
Mitch Wagner 10/3/2014 | 2:29:40 PM
Digging up streets As TalkTalk notes, digging up streets is indeed a colossal capital investment, but ultimately there's a competitive advantage to carriers owning their own infrastructure. 

What's the movie line from?
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