Inspiratia InfraTech Takeouts

An open question
Where the altnets lack size, their larger incumbent competitor Openreach
lacks incentive. With the way the market is regulated, it makes little sense for
Openreach to invest in fibre infrastructure upgrades when its legacy copper
network is already bringing in revenue and the opportunity for additional
returns is slim, said Ian Dabson, a commercial specialist with the government's
Infrastructure & Projects Authority.
"So the only business case they can make is opportunity cost if they lose their
market share," said Dabson.
With CityFibre already claiming to offer cheaper and higher-quality connections
than Openreach, there are certainly pressures on the market to evolve. While
Openreach theoretically has the clout to simply outprice its smaller competitors,
new entrants have benefited from a number of regulatory changes in recent
years that level the playing field, including restricting Openreach from
selectively lowering prices only in the areas where competitors are taking
market share.
The UK government is still developing its strategy to attain near universal full
fibre coverage for homes, businesses and future smart cities infrastructure such
as lamp posts and traffic lights. It is currently carrying out the Future Telecoms
Investment Review.
Experts estimate the densely populated parts of the UK – around 40-50% of
the market – will be developed on a fully market-based approach in the next
few years. On the other end of the spectrum, where the country is sparsely
populated and demand is low, it will make little economic sense for fibre
developers to invest without subsidies. But there are also second tier population
centres which could be developed under more innovative schemes such as
regional monopolies or the French and Portuguese models.
"When you get to the very edge of the network it's going to be extremely
challenging to deploy that economically," said Matthew Evans, CEO of
Broadband Stakeholder Group and Executive Director of SmarterUK. "In that
middle third there's some really interesting policy choices facing the government.
That could be something in the way of a regional monopoly. It could be a bit of
a more innovative approach than what we have seen today."
Lessons from France
In a similar vein, the French full fibre market has been developing at a rapid
pace in recent years.
"We started looking at infrastructure in broadband back in 2009," said
Gwenola Chambon, head of infrastructure funds at Mirova. "At the time nobody
was interested in that sector in France. Very limited banks were attracted by the
sector due to technology risk. And then in 2014, we actually went to the capital
markets."
In a few short years, infrastructure investors have come up with ways to compete
with the major telcos, introducing mini-perm structures and creating a new asset
class within rating agencies in order to facilitate aggressively geared project
finance in a space with significant technology and revenue risk. Today, the
market has heated up to the point where some bidders are no longer asking for
subsidies.
"We are in France seeing crazy terms," added Chambon. "We started with an
initial double-digit strategy for new projects and now we are even below double
digits for risky greenfield transactions, because we are facing competition from
incumbents which are just struggling not to lose opportunities."
While the French broadband PPP programme is coming to an end, Chambon
said she sees further opportunities elsewhere in Europe.
"We are in a market that is very hot on infrastructure. There is major potential
for investment. Some of the traditional countries – the UK, Germany, France
and Italy – are lagging behind and we need to catch up and invest massively to
reach the threshold of 80% by 2022."
5G era
Whilst full fibre investment has fallen behind in the UK, authorities are working
to ensure that the nation is at the front of the pack in developing the next major
widely adopted telecom technology – 5G.
The new mobile communications standard is necessary to support many
upcoming innovations – including artificial intelligence, the cloud and driverless
cars – and then connecting these systems to physical infrastructure.
"5G is the bit that sits between the infrastructure and the data and the
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