Updated: Dec 13, 2022
There is no doubt we are entering an economically precarious period which is forcing telecoms operators, smaller alternative network operators (altnets) and their investors to rethink their market strategy to focus on survival. Although there is a lot of media coverage around impending market consolidation, this article demonstrates that this is not the only survival option and provides four key market growth strategies for altnet leaders, or their investors, to consider.
An economically precarious period
There is no doubt we are entering uncertain and unpredictable economic times which will force telecoms operators, and smaller altnets in particular, to rethink their market strategy. If historical trends play out, despite broadband’s utility, the certainty of a prolonged and deep recession could force consumers to downgrade tariffs or look for better deals resulting in reduced broadband service revenues.
In addition, with around 100 smaller altnets in the UK, reports of overbuild are emerging, particularly in urban areas creating competitive tension. Furthermore, inflation and a worldwide shortage of key materials, has increased the cost of building and operating networks putting pressure on profitability and RoI.
Altnet investors that have committed over a combined GBP 12 billion to building alternative fibre networks in the UK are now starting to focus on survival, forcing them to recalculate their financial forecasts and reconsider their market strategies.
Market consolidation this is not the only survival option
Although there is a lot of media debate around market consolidation this is not the only survival option; four key market strategies are available to altnets, even where there is existing competition and fibre coverage, as illustrated by the four quadrants in our fibre market attractiveness matrix which segments the market by coverage maturity and competition.
Figure 1 - Fibre market attractiveness matrix. Source : Intelligens Consulting, 2022
Four strategies are available to altnets even where there is existing competition and fibre coverage
Greenfield opportunities still exist, although rigorous coverage and market analysis is required to identify them. The ‘Market Grab’ strategy represents such a scenario where fibre coverage is very low, and there is room for at least one altnet to accrue customers. However, growth must be rapid as the window of opportunity may be limited. Supply chains and operational teams need to be aligned to support an aggressive network rollout. In addition, altnets should undertake a thorough market analysis to determine why competition and fibre coverage is low – to unearth potential delivery risks – followed by a rigorous financial analysis to determine its commercial feasibility.
The ‘Flank Attack’ strategy involves targeting the weak points of competitors. This strategy can be deployed in a market where fibre presence is below market potential, but established, and where there is still room for at least one altnet. Altnets will need to consider aggressive and sophisticated ‘below-the-line’ targeted marketing drawing upon their knowledge of the target region to selectively entice unserved customers. As the market matures, altnets will need to differentiate their propositions, encouraging competitor churn to continue their growth journey.
Market entry by ‘Acquisition’ is more suited to markets with high entry barriers such as established competition and higher levels of fibre coverage where organic market entry may be more challenging to justify. However, as we all know acquisitions can be extremely complex and time consuming. The cost of acquisition needs to be carefully evaluated against the value that will be created by the enlarged entity, in addition to achievable cost savings, network integration costs, the growth potential, alignment of organisational values etc.
The ‘Direct Challenge’ strategy applies where competition is high but where fibre coverage is significantly below market potential. This can occur in markets where competitors have only recently announced network build strategies but have not yet made significant progress. Altnets will need to grow rapidly and directly challenge competitors by combining aggressive above and below-the-line marketing, targeting unserved locations to grow market share while ensuring they differentiate from competitors either through price, service or added value to entice potential customers away from competitors.
We have seen opportunities for our clients in all four quadrants. In each of these quadrants, telecoms leaders will need to consider what level of competition and fibre coverage is supportive of their business plan and growth ambition. This will be unique to each operator and will very much depend upon the ambition of the CEO, the board, and the risk investors are willing to take.
Strategies requiring rapid network build and customer take-up should consider deploying fibre using existing assets such as ducts or utility poles, shallow and rapid trenching techniques, or consider alternative gigabit wireless technology to create network presence.
Intelligens Consulting is an award-winning telecoms and smart city advisor. We advise investors and operators on their investment and market entry, growth and acquisition strategies. Our expert and senior team is experienced in network, strategy, economics, procurement, and financing. We have a global client base providing investors, operators, and policy makers with technical, strategic, and commercial advice. Please contact us on info@IntelligensConsulting.com should you wish to discuss anything discussed in this article.