Global Economics

BT Rolls Out a Massive Fiber Network


The telecom giant announced a network investment expected to connect as many as 10 million homes to the superfast broadband service by 2012

On July 15, London-based telecom giant BT Group (BT) announced it will spend almost $3 billion by 2012 to connect as many as 10 million homes to superfast broadband services using fiber optics. The massive infrastructure investment should go some way toward helping Britain catch up to France, where household penetration of speedy Internet connections is about 50 times higher. But just how good the rollout will be for competition and consumers is still an open question.

The new fiber network, announced by new BT Chief Ian Livingston, will cover about 40% of the British population, giving those customers enough speed to run multiple bandwidth-hungry applications. This could allow, for example, some family members to watch high-definition movies while others are playing online games or viewing graphic-rich files or video.

Analysts say BT has to upgrade its network if Livingston wants to succeed at his stated goal of increasing the company's focus on home entertainment, in competition with satellite, cable, and free over-the-air digital TV. It's already behind many European counterparts (BusinessWeek.com, 5/29/08). While France Telecom (FTE) and Telefónica (TEF) have offered TV services for years, BT began its own offering only 18 months ago. And while other telcos offer Internet TV, BT's service, called BT Vision, is a hybrid that uses a combination of DSL and digital terrestrial broadcasting.

BT decided to push ahead with a fiber rollout, following comment in the last few weeks from regulators in Britain and Brussels acknowledging that network operators investing billions in new, superfast networks need to make a decent return on investment. European Commissioner for Information Society & Media Viviane Reding said, for instance, that operators investing in fiber networks should reasonably expect a 15% ROI. "The regulatory mood music is getting to BT's liking," says John Delaney, a research director at IDC, a technology consultancy.

"The Most Competitive Broadband Market in the World"

The big question is what impact the move will have on competition. BT said on July 15 that it is committed to wholesaling its new services, unlike U.S. phone companies AT&T (T) and Verizon Communications (VZ), which have convinced regulators that closed networks are not only acceptable but essential to their business models. The telecom giants want to build quick new fiber systems to deliver high-speed Internet and entertainment services to U.S. homes. But the only way to justify the billions in cost, they argue, is if rivals are prevented from having equal access to the network and offering competing media services over the same pipes. But that's not the case in all countries, as Sweden, for instance, has shown (BusinessWeek.com, 6/9/2008).

A recent report from the Paris-based Organisation for Economic Co-operation & Development argues that if new fiber networks deployed by incumbent telcos are closed and the companies are allowed to bundle voice, TV, and Internet access, the result could be less freedom of choice and higher prices. It would also be more difficult to determine whether prices are linked to costs, potentially allowing operators to hide anticompetitive practices such as cross-subsidization between services.

BT says its move will ensure the country "remains the most competitive broadband market in the world." But the fact that BT will agree to allow competitors to use its network does not guarantee a competitive environment, says Ian Fogg, a research director at JupiterResearch, a technology consultancy. "The big challenge right now for regulators across Europe is, how can you encourage next-generation fiber without reducing competition in the market?" says Fogg.

BT competitors, including Carphone Warehouse (CPW.L) and British Sky Broadcasting (BSY) have switched clients to their own networks so they don't have to rent copper lines from BT Wholesale. If BT starts building out a much higher-speed fiber optic network it will make competitors' networks obsolete, potentially reducing competition by forcing those rival operators back onto BT's network.

BT's competitors will have to decide in the coming weeks whether instead they want to make substantial investments of their own to build out faster networks, says Fogg. That's precisely what network operators are doing in France, where three phone operators and one cable company are each building their own fiber networks.

Schenker is a BusinessWeek correspondent in Paris.

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