BT: we need fibre, not share buybacks

We also have to look at the cost savings from operating the fibre rather than the old copper. With Openreach's annual operating costs running at around £3,289m per annum, it would not be beyond the realms of possibility to expect £150m of annual savings.

This leaves the net regulated increased revenue at Openreach at approximately £1,100m. Of course, this is before the incremental revenue from video services, increased bandwidth, and increased market share. The £1,100m revenue across the 22 million lines in the UK equates to around £50 per line per annum or £4 per month charge.

Obviously, there would be a big debate with Ofcom on how much of the regulated return should be borne by lines on the existing copper network as opposed to new fibre homes. My own thought is that the whole of the UK network should bear as much cost as is politically possible and therefore the costs are spread over as many lines as possible. If a huge differential in price between services delivered over copper and over fibre exists then there is less incentive to people to swap and a big reduction in the possibility of ever sunsetting the copper network.

In my opinion, one way this problem could be solved would be to have a price list for a raw data and voice pipe whether delivered over fibre or copper as under the current WLR and LLU regime. There would be an incremental price for high speed broadband over fibre and another price for broadcast video. These incremental prices should be calculated to cover the success based element of the fibre network, in other words the cost to connect over the estimated life of the customer electronics, which would be around five years. This would work out with costs to connect of around £500 to £8.33 per month for the network charges for both high speed fibre data and broadcast video, which I think is reasonable. This would also mean around 50 per cent of the costs would be in cost to pass or an additional £2 per month to everyone's line rental.

The bottom line

The recent decisions by the French operators and by Verizon in the US to roll out FTTH without large scale government subsidies prove that the economics can be made to work. The special situation in the UK where Openreach prices are regulated, actually means the project is less risky for BT shareholders. BT just requires approval on how the costs are to be apportioned.

The big question in my mind is why BT is not pushing ahead presenting a FTTH project. I can see that BT would want to minimise changes, and therefore risk, while it is upgrading the core network with 21CN. Realistically, I can see how a big project like FTTH would absorb Ofcom for around a year, navel gazing and negotiation, before approval was granted. By which time there will be large areas of the country where 21CN is implemented.

The only reason I can think of is that BT does not think there is currently enough political and end-user support for such a project. But this support will build over time as more and more cities and homes within Europe are connected with fibre and the UK falls further and further behind. Support will also build as more and more consumers become frustrated by the UK speeds and find that services such as video streaming over the internet only work at low quality.

With an increase in line rental of just £2 per month, OpenReach gets a fair mechanism to pay for the investment. FTTH is not only vital to UK plc, but affordable. It's frustrating to have to sit and wait while BT decides to make the case. ®

This article appears today on the Telebusillis blog.