Why the UK needs to put BT on a high fibre diet
Andrew Ferguson, whose comments on our “Lies, damn lies and broadband data” story have made an extensive contribution to our understanding of some of the more arcane features of broadband in the UK, has come up with an interesting analysis of BT and Talk Talk’s costs and prices.
It suggests BT’s gross margin on fixed costs for its copper ADSL2+ service is around 169% while the margin on its top end 80/20 Infinity fibre to the cabinet (FTTC) service is around 57%.
That may explain why it is reluctant to give up copper for a more fully fibred network. It also shows how much fat is available to it for price wars with other network operators.
Meanwhile, The Guardian, which is increasingly a digital construction, has lately woken up to the fact that the UK’s broadband services may struggle to distribute its fancy infographics. It quotes BT’s strategy head, Sean Williams saying, “Eighty Mbps is more than people need.”
Of course Williams walking a well-trodden path down which firstly the man who created IBM, Thomas Watson Senior, and more recently Microsoft’s Bill Gates have wandered. Watson said the global market for mainframe computers was about five. Gates said 640k (of RAM) should be enough for anyone.
Fortunately for their firms, they were both wrong, and I’m pretty sure Williams is too. If he is right, then we are already at “peak broadband” and BT is finished both as a growth business and as an engine of growth.
Perhaps we’ll have a clearer picture on Thursday when BT publishes its 2011 results. The key figure to look for is the take-up rate of broadband, i.e. number of customers compared to “homes passed”. It’s been running at 5% or less, mainly because it’s been duplicating Virgin Media’s coverage footprint, and just can’t compete.