UK’s ISPs picking up pace with ultrafast FTTP deployments with consumer uptake slowly gaining traction
Incumbent BT Openreach had another blistering quarter for FTTP rollouts as it delivered a record FTTP build of 662,000 premises passed at an average rate of over 50,000 per week with a footprint of 6.5 million (2 million which are rural) with 16 retail ISPs signing up to Openreach’s discounted GEA-FTTP Equinox Offer which launched on 1 October 2021.
Virgin Media O2 (VMO2) completed its entire network (15.65 million premises) upgrade to DOCSIS 3.1 on 7 December 2021 with average speeds of 214 Mbps across the company’s broadband base.
What we measure
Number of broadband connections by technology and market sector, with household take-up from Q4 2006 to Q4 2021 along with business and consumer splits, and market shares for major UK ISPs up to Q4 2021.
Summary of key findings
The UK’s gigabit-capable broadband coverage reached an impressive 65% and full fibre coverage reached just over 30% of the UK[1], due largely in part to VMO2 completing their network upgrade, Openreach overcoming previous quarters’ backlogs and independent “AltNet” suppliers making their presence known, especially in rural locations, market towns and cities. AltNets remain an attractive perspective for investors as the quarter saw GBP 805.5 million in financial backing being secured by a handful of ISPs including Broadway Partners, Gigaclear, Lightspeed, Netomnia, Toob, Truespeed and Zzoomm - with a combined aim of passing 8.350 million premises by 2027.
Key trends in Q4 2021:
Total Q4 2021 FTTP, FTTx, cable, FWA/satellite and DSL wholesale connections stood at an estimated 28.3 million, up from 28.1 million Q-o-Q and 27.6 million Y-o-Y
Total retail connections reached an estimated 29.4 million during Q4 2021, up from 28.9 million Q-o-Q and 27.8 million at the close of Q4 2020
Superfast and ultrafast consumer fixed broadband using predominately FTTP, DOCSIS 3.1 or FTTx, made up around 86 per cent of the UK’s total broadband market
At the close of Q4 we estimate that just over 53 per cent of lines live on the Openreach FTTx network belong to non-BT service providers (Figure 1)
Smaller FTTx (pre-dominantly FTTP/B) ISPs subscribers saw nearly a 6 per cent increase in the quarter to an estimated 793,000 out of 2.628 million with their market share coming in at 12.7 per cent in Q4 2021
Major ISPs
All major ISPs reported positive results in the final quarter despite a challenging year of continued pandemic lockdowns and restrictions, supply issues and a saturated marketplace.
BT’s fixed broadband Consumer net additions picked up pace in Q4 2021, with an estimated 44,000 subscriber additions
BT’s Consumer FTTP customer base increased to 8.6 per cent of their overall connections up from 7.3 per cent, or 1.053 million up from 945,000, Q-o-Q; in areas served by BT’s ultrafast FTTP network the penetration rate in Q4 reached 27 per cent (up from 25 in the previous quarter and 20 per cent Y-o-Y) for its Consumer division
Openreach’s FTTP base has grown by 244,000 quarter-on-quarter, their largest ever quarterly increase and stood at 1.508 million in Q4 2021 up from 1.264 million in Q3 2021 and 790,000 from the previous year (Figure 2)
VMO2 saw their fixed segment showing a marked improvement from the previous quarter with their broadband net adds reaching just over 60,000 up from 42,000 in the previous quarter
VMO2 announce future for wholesale network strategy and aim at establishing a Joint Venture (JV) to fuel their ambition to cover 7 million additional UK homes with full fibre broadband by end 2027
Sky UK remains the dominant player in its European operations; Sky saw 61,000 net broadband additions throughout its European market and ended the year with around 6.7 million UK subscribers
Openreach close out year with solid operational performance
The supplier continued to see good traction and performance on Equinox (its long-term FTTP pricing offer), with 16 communication providers now onboard, including Sky and TalkTalk. Over 64 per cent of FTTP orders in Q4 were for ultrafast speeds, and 48 per cent of all FTTP orders in Q4 were from communication providers external to the BT Group.
Openreach reported revenue growth for the quarter was driven by higher rental bases in fibre-enabled products, up 10 per cent, and Ethernet, up 6 per cent. This was partially offset by declines in legacy products including a reduction of 175,000 WLR voice lines supporting FTTP lines. EBITDA grew with revenue growth, lower repair volumes, ongoing efficiency programmes which were partially offset by higher operating costs. The increase in operating costs was primarily driven by increased FTTP provisioning activity, higher running costs, recruitment and investment in people.
At the end of December 2021 Openreach had passed over 28.959 million premises with superfast technology. G.Fast technology remained static at 2.831 million premises and FTTP covered 6.442 million premises, taking its combined ultrafast footprint to 9.253 million up from 8.611 million quarter-on-quarter.
Openreach’s published connection figures for recent quarters for the varying FTTx technologies are provided in Figure 3 below.
BT market share decreasing despite strong end to the year
With the surge of network expansion and robust marketing campaigns by independent providers, along with FTTP and gigabit-capable broadband starting to take root in consumers market understanding, the main suppliers’ market shares are beginning to wane, albeit only very slowly. Point Topic estimates BT’s market share (Figure 4) to stand at 31.5 per cent in Q4 compared with 31.8 per cent in the previous quarter and 32.7 per cent Y-o-Y. VMO2’s was relatively unchanged at 19 per cent down from 19.1 per cent in Q3 and 19.5 at the close of 2020. Conversely, Sky has seen in increase in its stake as it ended 2021 with a 22.7 per cent share, up nearly a half percentage from Q3 and up just over 1ppt Y-o-Y at 21.5 per cent at the close of 2020.
Virgin Media O2 show solid end of year performance as combined entity
VMO2 completed its entire gigabit-capable DOCSIS 3.1 network upgrade on 7 December, covering 15.659 million premises. It launched its first joint bundles (VOLT) for consumer and small office and home office (SOHO) customers in early October, just four months after the start of the joint business, with these bundles driving growth in fixed-mobile convergence penetration to 45 per cent by the end of 2021. Fixed net adds were 142,000 in 2021, with 53,000 in Q4 representing a seventh consecutive quarter of growth in both Project Lightning areas and its existing footprint, whereas broadband net adds were 177,000 in 2021 of which 60,400 were delivered in Q4. The operator also grew its SOHO customer base by 38 per cent in 2021. Its total number of fixed line subscriber base reached 5,596,800 up just over 3ppts Y-o-Y from 5,420,100.
In terms of revenue for the quarter, the total transaction adjusted revenue decreased 0.7 per cent Y-o-Y to GBP 2.7 billion in Q4 supported by an improvement in mobile revenue which increased 0.8 per cent to GBP 1.6 billion. This performance was fuelled by increased upgrade activity following flagship handset launches in late Q3 partially offset by lower service revenue due to the continued impact of a change in the distribution channel mix.
In Q4 2021, the Project’s expansion passed 93,000 premises which is comparable to Q1 2020 which was effectively the start of the Covid-19 pandemic. The total build to date is 2.7 million premises with around 1.5 million via FTTP and the rest as Hybrid Fibre Coax. VMO2 aims to accelerate its Lightning build in 2022 and pass more than 500,000 premises, which would need to see the operator shifting up a gear and averaging around 125,000 premises per quarter.
Although the additions were not overly impressive (Figure 5) by any means, the quarterly report saw the supplier finally confirming their long-awaited plan to extend the operator’s FTTP broadband network to cover around 23 million UK premises by 2027 (7 million more premises than it currently covers) via a new joint venture.
Superfast and ultrafast lines top 24 million
At the close of Q4 2021, Superfast (30Mbps+) and ultrafast (100Mbps+) line numbers continued their upward trajectory as they reached 24.3 million up from 23.9 million, increasing by an estimated 422,000 connections during the quarter. Quarter-on-quarter growth saw just under a 2 per cent increase with a Y-o-Y increase of nearly 10 per cent with subscriber lines reaching 22.192 million at the close of Q4 2020. This includes lines provided by independent network operators and KCOM, the incumbent in Kingston upon Hull. These lines now represent nearly 86 per cent of the UK’s total broadband market, up 1ppt from Q3 2021 (85 per cent) and up from 80 per cent the previous year as shown in Figure 6.
As ultrafast full fibre additions gained traction in the quarter especially given that VMO2 completed its network upgrade and BT have been rolling out full fibre at a record rate superfast speed line additions are starting to see significant slowdowns. The combined additions of both super and ultrafast lines during Q4 reached estimated 146,000 compared with 110,000 in the previous.
FTTx uptake continues its steady climb
Digital Subscriber Line technology had fallen to 3,737,800 by end-December 2021 down from 4,012,900 by end-September 2021, and down from 5,256,900 and now represents just 13 per cent of the total broadband market. FTTx lines including FTTP, FTTB and FTTC, account for nearly 66 per cent of the market with 18,829,200 connections. Cable modem lines number 5,601,800 up from 5,541,400 million in Q4 2021 and up just over 3 ppts overall Y-o-Y. Further details can be found in our UK Broadband Market Statistics Q4 2021 and UK ISP Market Share Q4 2021 spreadsheets.
Smaller players showing strong performance
Interest and commitment are growing strongly in the independent network sector, with investment and expenditure commitments totalling GBP 5.6 billion from 2020 to 2021. A further GBP 805.5 million in financial backing was secured during Q4 2021 by AltNet providers. Fixed independent network deployments are now completely focused on full fibre and gigabit capable networks, with some operators deploying fixed wireless networks in hard-to-reach areas.
Our estimate for the combined broadband base of the UK’s smaller service providers stood at 2,628,000 at the end of December only up very slightly from the previous quarter. Their market share dipped ever so slightly to 12.7 per cent from 12.8 in the previous quarter. Larger, more urban based ISPs such as Community Fibre, Hyperoptic and G.Network have been ramping up efforts in their rollouts and should start gaining good traction within these areas over the next few quarters. Rural, hard-to-reach areas are seeing a flurry of deployment activity from Gigaclear, Broadway Partners, Trooli, Quickline and Lightspeed Broadband, with rural market towns seeing the greatest benefit so far. VX Fiber, Connexin, Upp, Freedom Fibre and Toob, to name but a few have all either announced expansion plans, commenced network builds, or have announced thousands of premises are live and ready for service. However, given the recent proliferation of AltNet providers in the past two to three years (currently there are over 100 suppliers with Code Powers), it is likely that the next couple of years we will be seeing a tremendous amount of consolidation within the AltNet sector as survival and sustainability in a saturated market will result in larger more competitive mergers and acquisitions amongst the smaller players.
[1] Thinkbroadband December 2021 update on broadband availability across the UK, nations and regions, 7 January 2022