BT Edges Closer to All-Fiber Scheme for 10M Properties

BT is edging closer to a full-blown commitment to build all-fiber networks for around 10 million UK premises by 2025, after witnessing an improvement in the regulatory environment that could help to support investment. (See BT to Slash 8% of Jobs in Efficiency Drive, BT's Patterson May Be Running Out of Time and BT's Patterson May Be Running Out of Time.)

The operator's current plan is to build a fiber-to-the-premises (FTTP) network for about 3 million UK premises by 2020. It will also use the copper-boosting Gfast technology to improve connectivity for about 10 million premises, equaling about 40% of UK homes, by the same date.

But there has been growing regulatory and competitive pressure on BT Group plc (NYSE: BT; London: BTA) to make a bigger all-fiber commitment. Politicians are concerned the UK may find itself at an economic disadvantage to other European countries where such networks are already widely available.

BT has previously indicated a willingness to extend all-fiber networks to around 10 million premises by the mid-2020s, provided regulators are supportive. Under existing rules, BT is required to make its networks available to rivals at prices set by the regulator. It typically complains these rates are too low.

Recent pricing decisions by national regulatory authority Ofcom have been less punishing, as far as BT is concerned, and could lead to a more fruitful relationship between BT and Ofcom in future, said executives at an earnings call this morning.

"The return on capital is moving closer to the allowed return and therefore pricing intervention should be less significant in future, with more focus going to service and efficiency," said Gavin Patterson, BT's CEO, in a discussion with analysts. "This is the discussion we want to be having with the regulator."

BT has promised to spend around £3.7 billion ($5 billion) on capital expenditure in each of the next two fiscal years, up from £3.5 billion ($4.7 billion), with funds earmarked for a potential expansion of the all-fiber footprint and investment in mobile networks.

At the end of March, its Gfast network covered around 1 million premises, while FTTP infrastructure was available to about 560,000 premises. A bigger investment in all-fiber networks seems likely to have an impact on BT's Gfast plans.

Patterson shrugged off criticism during the earnings call that BT was not announcing firmer broadband coverage goals and said the operator was actively building networks while rivals were merely promoting their plans.

"Within the £3.7 billion there is an increase in FTTP and we are building while others are talking, by the way," he said. "There are only two companies with good experience of this in the UK -- BT and Virgin [the UK's leading cable operator]."

The remarks were clearly a dig at small fiber rival CityFibre, which in recent months has embarked on a project with Vodafone UK to bring all-fiber networks to a number of UK towns and cities.

"I am deeply offended by the suggestion we will surrender Edinburgh [to CityFibre]," said Clive Selley, the CEO of BT's Openreach infrastructure business, when quizzed about the CityFibre challenge to BT's plans. "I am confident that we can build at lower cost and higher quality than any newcomer."

But there seems little doubt the challenge from CityFibre and other fiber investors in the UK market has driven BT to look more seriously at a more extensive fiber deployment.

Investments by rivals and the "legal separation" of Openreach, which is now managed at a distance from the rest of the BT Group, may have helped to improve the relationship between BT and Ofcom.

Ironically, however, BT had originally complained that investment conditions would deteriorate if Openreach were separated. Since legal separation happened, it has upped its broadband investment commitments.

— Iain Morris, International Editor, Light Reading