Sponsored By

BT Unveils $3B FTTx Plan

BT has announced a plan to invest £1.5 billion in a fiber-based broadband access upgrade, but an analyst calls the move 'cautious'

July 15, 2008

7 Min Read
BT Unveils $3B FTTx Plan

After years of deflecting questions about building a nationwide fiber access network, BT Group plc (NYSE: BT; London: BTA) has today announced a planned £1.5 billion (US$3 billion) investment in new fixed broadband infrastructure, including fiber-to-the-premises (FTTP). (See BT Invests in FTTH.)

But despite the large capex figure and apparent broadband breakthrough for the U.K. -- a fiber-access-poor residential market compared with many of its European peers -- the news is deemed somewhat disappointing by at least one industry analyst, who describes BT's strategy as "cautious."

BT's plan: the details
The British incumbent plans to invest £1.5 billion by the end of March 2013 to take what BT calls "super-fast broadband" to as many as 10 million U.K. homes (about 40 percent of the total) in urban and rural areas, though the actual commitment and deployment are dependent on agreements being reached with U.K. regulator Ofcom (of which more later). The operator says the move will deliver downlink connections of up to 100 Mbit/s to support services such as multiple HD TV streams and HD gaming and videoconferencing. BT says uplink speeds will be "substantial."

Most of the rollout will be fiber-to-the-curb (FTTC), with the final connection to the home being a VDSL2 service over copper that can deliver up to 40 Mbit/s. FTTP will be rolled out mostly in new-build, greenfield areas, such as the housing development in Southeast England, where BT is installing fiber access technology, and in the Olympic Village that's being built outside London for the 2012 Olympic Games. (See BT Goes With Huawei for FTTH .)

A BT spokesman says the likely technology choice for FTTP will be GPON -- much in the news at present -- though the carrier "is not ruling out point-to-point fiber access." (See PON-derous! and ECI Touts GPON Advance.)

The deployments will be spread around the U.K., with the rollout plans being influenced by the level of support BT gets from local and regional authorities.

The other 60 percent of the U.K.'s homes will get ADSL2+ services from BT, which provides downlink speeds of up to 24 Mbit/s.

The carrier says no technology tender documents have been issued yet: "It's too early for that," says a spokesman.

The planned £1.5 billion investment includes £1 billion ($2 billion) of new capital expenditure, and £500 million ($1 billion) of funds already earmarked for fiber deployments -- BT provides fiber access to enterprise customers, with 120,000 businesses already connected.

The operator expects to spend £100 million ($200 million) incremental capex in the current financial year (to the end of March 2009) and the next fiscal year (to March 2010), taking the operator's total planned capex budgets for those years to £3.2 billion and £3.1 billion ($6.4 billion and $6.2 billion), respectively. The remaining £800 million ($1.6 billion) of incremental capex will be spent during the following three financial years.

To support the additional investment, BT is suspending its current buyback program from the end of July: The carrier says it will have returned more than £1.8 billion ($3.6 billion) of the planned £2.5 billion ($5 billion) buyback target to investors by that time. BT is, though, retaining its dividend scheme, and expects dividends to grow during the current financial year.

News of the buyback suspension and planned capex splurge knocked 8.4 pence, about 4 percent, off BT's share price today, sending it down to 193.6 pence on the London Stock Exchange .

To Page 2

Analyst: not bold enough
While BT's recently installed new CEO, Ian Livingston, believes this is "a bold step by BT, and we need others to be just as bold," at least one industry analyst isn't so enthusiastic, describing BT's strategy as "cautious."

Heavy Reading chief analyst Graham Finnie, who has spent a lot of time researching the European next-generation broadband market during the past few years, said the news was "exciting," but he feels it doesn't go far enough. (See FTTH Technology Fracas Continues and Report: EMEA Set for FTTH Surge.)

"BT is just about the last big incumbent to disclose its fiber access strategy, and this is a relatively cautious approach because there's no actual commitment to fiber-to-the-home in their existing network footprint," in contrast to operators such as Orange (NYSE: FTE) and Telia Company . (See TeliaSonera Commits to FTTx and FT Fleshes Out FTTH .)

The major hurdle: regulation
BT says the investment is dependent on Ofcom's willingness to create a regulatory environment that will allow BT to get a return on its investment.

The operator is making all the right noises in terms of meeting Ofcom's likely competition concerns, as BT has stated its commitment to wholesaling the broadband services to all ISPs on an equivalent basis -- which means BT's retail business doesn't get preferential treatment -- while a BT spokesman says he believes that BT's fiber ducts will also be made available to other service providers.

And Ofcom's CEO, Ed Richards, has been making conciliatory announcements, too. Ofcom has already stated its willingness to support "super-fast broadband" developments, and he welcomed today's BT news, acknowledging Ofcom's role in the process. "Given the potential consumer benefits, regulation needs to provide the right incentives for operators to invest, recognising the inherently risky nature of these investments," he said in a prepared statement released today. (See Ofcom Welcomes BT Move and Ofcom Makes FTTx Proposals.)

And just last week, Richards gave a speech addressing the issue of next-generation fixed access that suggests a meeting of minds with the incumbent carrier: "Super-fast broadband is crucial to the U.K.’s future. These next-generation networks form part of the critical infrastructure of the country’s economy and will be central to the way we live our lives in the future," Richards told a business conference. "Ofcom favours a regulatory environment for the next generation of networks and access that both allows and encourages operators to make risky investments, to innovate for the benefit of consumers, and, if the risks pay off, for the benefit of their shareholders, too." (Read the full speech at this link.)

BT says it's hopeful of reaching an agreement with the regulator. "We've been speaking with Ofcom for a number of months about this topic but we haven't discussed this particular announcement," says a BT spokesman. "Ed Richards's speech last week was very encouraging. I expect Ofcom will want to join us and the rest of the market to find ways of moving forward."

The key issues will likely revolve around the unbundling of assets such as fiber ducts and street cabinets, the impact on the existing broadband investments of alternative operators that have unbundled BT's copper access network, and pricing. "Pricing will be a big issue. [The proposed plan] is a riskier investment than many others, so we, and our shareholders, will expect a better return on investment to account for that risk."

The analyst team at Dresdner Kleinwort believes BT's announcement, which came as a surprise to Ofcom and the U.K. ISP community, is an attempt to put pressure on the regulator and the U.K. government to back its plans.

"In taking the initiative, BT it is trying to force the hand of Ofcom and... the U.K. government. BT's ambition would be for the regulators to confirm that it is not responsible for stranding other companies' assets and has freedom to offer wholesale products and invest geographically where it makes most sense commercially," stated the Dresdner team in a research note issued this morning.

BT says it will also be "pressing for any other next-generation access network in the U.K. to be open to other companies," but that this is not a condition associated with its own plans. "It's a point of principle, not a showstopper. We see no reason why other networks shouldn't be open, too," says the spokesman.

Ofcom says it will publish detailed proposals for the regulatory framework for next-generation access networks in September.

— Ray Le Maistre, International News Editor, Light Reading

Read more about:

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like