Tuesday 22 April 2014
By Christopher Williams , Technology, Media and Telecoms Editor
8:00PM BST 19 Apr 2014
Commercial roll-out of “superfast” fibre-optic broadband to two thirds of
the country is not due to be completed for a couple of months, but
already attention is shifting to the next phase of investment in Britain’s
BSkyB and TalkTalk, two of BT’s biggest broadband rivals in retail but its
top customers in wholesale, announced last week they will club together
to build their own fibre-optic network in York within a year.
Though each company is investing only £5m in York and is keen to
emphasis the experimental nature of the roll-out, it signals a growing
appetite for fibre from broadband providers, consumers and investors.
For Dana Tobak, the co-founder and chief executive of Hyperoptic, a
start-up focused exclusively on fibre-optic broadband, it is a validation of
the £50m bet placed on her company last year by Quantum Strategic
Partners, one of billionaire George Soros’s investment companies.
The funding has helped Hyperoptic to accelerate its plans so that it has
now connected 35,000 homes and businesses, including those built on
the Olympic Park in east London.
“We’re still at the stage, frankly, where we are educating developers.
Some of them get it, some of them don’t yet,” says Tobak.
“They don’t understand the difference between our technology and what
BT is doing. I blame BT a bit for that.”
The difference between the vast majority of BT’s upgraded network and
Hyperoptic is fundamental. The same applies to what BSkyB and
TalkTalk plan to build in York.
All of them use fibre-optic cables to carry data as digital light pulses,
rather than as analogue electrical signals along copper wires.
But whereas Hyperoptic and the York network use fibre optics all the way
into every home and business they connect, for the vast majority BT is
replacing its old copper cables only as far as cabinets on the side of
The final hop remains reliant on an analogue electrical signal, which is
slower and less reliable.
It means that once BT finishes the commercially funded upgrade of its
network at the end of the spring, the fastest broadband packages on offer
from retailers in most places will offer downloads less than a 10th as fast
as a full FTTP (fibre to the premises) network.
It comes down to cost. Research published by Enders Analysis last week
found that the average cost of BT’s upgrade for each of the 19.3m
premises will be £130.
In York, between them, BSkyB and TalkTalk are investing £500 for each
of the 20,000 homes they plan to connect.
If all goes well, the partners aim to repeat the trick in at least two more
smaller cities, where closing roads to dig trenches tends to be more
expensive and there is less fibre-optic capacity already in the ground.
But there is no prospect of BSkyB and TalkTalk building an FTTP
infrastructure to rival the scale of BT: Enders estimates the economics
mean their joint venture could be extended to 11pc of households, and
possibly an extra 4pc if partners could be found in some bigger cities.
Covering 15pc of the country with FTTP would cost BSkyB and TalkTalk
£2.2bn, Enders estimates, not far short of the £2.5bn BT is spending on
installing fibre optics to street-side cabinets for two thirds of premises.
“While the extent of the announced fibre build-out is very modest, it is a
move that strikes at the heart of BT, in much the same way as BT struck
at the heart of Sky in bidding for sports rights,” Enders said.
“The roll-out may be in limited areas, but these are very profitable areas
from BT’s perspective (dense housing makes line maintenance etc
cheaper), and in any case removing revenue from a largely fixed cost
base will be painful.”
BSkyB and TalkTalk’s initial investment in York is, however, also being
seen as a pointed reminder to BT that they believe its wholesale pricing
for the slower national fibre-optic network is too high.
The message is that by cutting its charges and undermining the
economic case for avoiding a wider roll-out of FTTP by its rivals, BT could
avoid a permanent loss of wholesale revenues.
Hyperoptic is playing a different game. It is a genuine long-term bet on
the value of internet infrastructure.
The company does not pay as much per premises as BSkyB and
TalkTalk plan to, because it cherry-picks only new developments and
blocks of at least 80 flats, which are simpler and offer economies of
Having begun in London, Hyperoptic is now installing fibre optics in
Bristol, Cardiff and Reading, and later this year will head north to Leeds,
Liverpool and Manchester.
According to Tobak, Hyperoptic will not need any further outside
investment and is on course to break even once it has wired up half a
BT argues that most people have no use for the one gigabit per second
speeds the technology offers, which mean a full high-definition film is
downloaded in a few seconds.
Having originally said up to a quarter of its upgrade would be FTTP, it
now refuses to reveal how many customers can access the superior
A BT spokesman said: “We’re also deploying fibre to the premises
technology in those areas where it delivers the best solution to the
“However, so far, the greatest demand has been for speeds of up to 40
megabits per second or 80 megabits per second, which gives customers
more than enough bandwidth to meet their needs.
“Both technologies have an important role to play, so we are offering both
to give customers a broad choice of different speeds and at extremely
How long that position will be sustainable is an open question. Increasing
pressure from commercial rivals, improving mobile broadband, start-ups
such as Hyperoptic and Britain’s economic competitors mean BT will at
some point have to invest again in fibre.