Fibre to the Home and Take-up Tracker – Interview with Dominic Kearns

In this episode, Mark Menzies, Director at Eight Advisory and Chris Stening, Senior Advisor at Eight Advisory, sit down with Dominic Kearns, CEO of Fibrus, to discuss Altnet growth, overbuild challenges, and strategies for sustainable market penetration. Dominic shares how Fibrus has navigated industry challenges, maintained strong take-up rates, and balanced commercial and subsidised builds to secure long-term success.

[Chris Stening]
Hi, I’m Chris Stening, Senior Advisor with Eight Advisory and I’m here today with Dominic Kearns who’s the CEO of Fibrus. And we’re here also with Mark Menzies, one of our Directors at Eight Advisory. We’re here today to talk about the Take-up Tracker. So first of all, Hi Dominic, hope you’re very well.

[Chris Stening]
We wanted to talk about penetration and Take-up. Do you think that we as an industry should be concerned that Altnet penetration has only gone up by 1% in the last six months, whereas BT or Openreach has gone up by 3%?

[Dominic Kearns]
We probably should be worried about that. 1% for six months for the Altnets who should be out there being very aggressive in their customer acquisition, it’s not a lot of growth. But that said, I suppose it depends where you sit in terms of your initial penetration.

If you’re sitting at single figures, low double digits then adding 1% every six months you should be concerned, whereas if you’re further up the chain and you’re sitting in your low 20s your mid 20s and you’re adding 1% you’re probably okay with that.

You probably want to get a bit more and then further up if you’re sitting above 30, 1% incremental increase every six months actually isn’t too bad and probably what we’d see within most business plans.

But it’s interesting you know you’re comparing that against 3% of Openreach, where Openreach have all the customers supposedly. You know the three to four of the big ISPs they have a multitude of smaller ISPs below that and they’re only transitioning 3% of those customers every six months. I think that’s probably a concern for Openreach. 1% every six months is probably a concern for the Altnets if they’re not in the high teens 20s or 30s at this stage.

[Chris Stening]
But from your perspective, you’re happy with your sort of penetration and Take-up performance. I know you’ve had some good results.

[Dominic Kearns]
Yeah, if I take the period that you looked at in your report Chris from May to September, we were starting in May at 24% penetration we are adding about 1.5-1.7% penetration. Now at the same time we were adding as many properties as we build as we were in terms of acquiring customers. We were happy with that and straight on the trajectory of our plan that we’re looking for.

[Mark Menzies]
Dom, I just wanted to ask on a topic that comes up quite frequently and that’s overbuild. How concerned are you about overbuild by other Altnets by Virgin Media, NexFibre, and also Openreach and how does that forecast overbuild you’re expecting impact where you plan to build in future?

[Dominic Kearns]
I suppose you’ll hear all CEOs of all Altnets saying that overbuild is probably their single biggest risk to their business plans and that is true.

From a Fibrus point of view, we’ve always been comfortable being one of two networks that’s exactly how our business plan was built and where we wanted to operate. We’ve always assumed that Openreach would appear at some point, we tried to get a head start in Northern Ireland. But as soon as we raised the money and started building up north it’s really kicked into gear.

Our experience has always been one of two networks in Northern Ireland and we’re comfortable with that. In the last couple of years NexFibre have appeared on the scene and they were the last to really mobilise and really take in the last chunk of private equity that was out there.

And we have seen them overbuild us in certain areas in Northern Ireland but we take a fairly dim view of that. We think it’s poor deployment of capital and NexFibre is full of industry veterans that have been through the previous cable the various cable generation and they should understand the impact of overbuild. But we’ve had them here in Northern Ireland probably the last couple of years.

We’re quite aggressive on our customer acquisition. We rolled out to most of these areas before they did, so we were well ahead in terms of our pre sales. We actively ramp up our operations in those areas, we target it with more marketing with more sales people.

And so much so that I see NexFibre have stopped building in Northern Ireland. Some of our cohorts within those bigger towns and villages that they were going after are some of our best. And it’s because of that effort that we put behind, making sure they understood, there’s probably no room.

There are probably the bigger cities, bigger towns that already have cable. There’s potentially room for a third operator if you can build very efficiently and connect very efficiently. And that’s the other model within the market that I think works. If you’re building cheaply and connecting cheaply then you can probably operate as a third network. But certainly not in the areas that we work. It’s semi-rural, cost to build is slightly higher and the cost to connect is slightly higher and there’s only really room for two operators.

[Chris Stening]
In that third sort of scenario more and more sort of urban areas you’d have that’s effectively Virgin then converting their cable network into fibre, isn’t it?

[Dominic Kearns]
That’s right. And the Altnets that kind of operate in that space they would tell you that that’s how they achieve their customers. Are the customers coming off the cable from Virgin Media. Overbuild is the bane of all the Altnets. We’ve been lucky we’ve managed to avoid it with no real other Altnet in Northern Ireland apart from Netomnia who build in Belfast and Derry, the cities that we don’t go after. We’ve been pretty much left alone and where NexFibre have a go we put it to bed fairly quickly.

[Chris Stening]
So, there’s no cable in the areas that you’re.

[Dominic Kearns]
No.

[Chris Stening]
Yeah, okay interesting. I wanted to ask you a bit about pricing and ARPU. One of the things that we noted from some of the Ofcom work is that broadband pricing has gone down 4%. It might have less impact on you because you’re a rural builder, but do you think the current pricing that you’re seeing in the market and the ARPUs are sustainable for a long-term profitable business? And again, probably different for you because of your rural focus.

[Dominic Kearns]
When you talk about ARPUs, I would separate the retail space and the wholesale. Retail ARPUs over the last couple of years, going back maybe three years have started to grow a little. And that’s been the bigger ISPs taking the opportunity to cash in on the high inflation. That in a sense has increased the underlying ARPU that there is within the market.

And what we’re seeing at the moment is the effect of high levels of discounting and this is in a period of us Altnets and the ISPs fighting it out to get the customers onto fibre. Once that kind of falls away and the market becomes more rational that underlying ARPU that’s there and you know the increases we’ve seen I think will start to appear. Certainly, we’re starting to see it. Some of our older customers who have been on from the start were starting to see our underlying ARPUs the undiscounted ARPUs growing quite nicely and we’re quite happy with that. But as a business we’re still in acquisition mode. Our pricing that’s out there at the moment is very aggressive and that will continue until such times as we’re getting to the levels that we need.

In terms of wholesale ARPUs, that’s a whole different question altogether. From our point of view when Equinox hit, it was game over and for those Altnets that had a wholesale only model. You can see those ARPUs for yourself. Unless you’re building really cheaply and connecting really cheaply as we talked about before, those wholesale ARPUs aren’t sustainable. It takes a lot of cash in the early stages of these businesses and if you can’t see a pathway quickly to revenues and break even and profitability then you’re always going to be under severe pressure. But thankfully from the start we’ve got our model right.

From day one we’ve been vertically integrated. I remember one of the first conversations we had with our investors Infracapital where we welcomed them to consumer marketing. These guys are used to infrastructure and deployment. We welcomed to consumer marketing cause from day one we knew what the game was. I laugh sometimes when I hear you know over the last 12 to 18 months you’ve heard all the Altnets that have stopped building saying, we’re now going to focus on commercialising our network and I’m going, bloody hell what have you been doing for the last five years. You know, has nobody read the script here in terms of what we’re meant to be doing. There are ARPUs at a retail level they’re sustainable and they’ll continue to grow. Wholesale market is gonna be tough for the next quarter.

[Chris Stening]
Okay.

[Mark Menzies]
Going on to the following point on commercialising your network. Your overall penetration is very strong 26% that’s in the top tier of Altnets in the UK. And I think when we look at your specific more mature cohorts, you’re getting close to 50% Take-up which is very impressive.

Could you perhaps give us a bit of colour on what do you believe is driving such strong cohort performance and whether you see this is sort of where your overall penetration is heading to, given those dynamics you mentioned about the lack of overbuild with Virgin and other Altnets.

[Dominic Kearns]
I think you call it impressive Mark, I call it doing what we said we would do. Maybe a more of a reflection of the rest of the market rather than ourselves. We’re right on business plan in terms of our trajectory and we’re setting today at 27%.

What slightly de-risked our business was we went for a model that we would build both on our own dollar or commercially ourselves but also using some subsidy on those particular areas to help de-risk the long-term penetration that we would have on our entire network. You talk about some of our cohorts being at 50% that’s what the likes of subsidised build gives you.

Just in simple terms, if you can get a third of the market on your commercial build and 50-60 70% on the subsidised build that’s quite a nice blend that gets you into the area that you need to be in terms of penetration of your overall network. We’ve blended that strategy with a view to trying to de-risk the overall penetration that we would see in our network. We’re doing pretty well.

We’re going through a period now of repair in Northern Ireland following the storms. But even this morning I was talking with the senior team that how strong our sales still remain. We have absolutely no sales people on the ground because they’re all helping customer service centres. Our sales remaining as strong as they’ve ever been and that’s been building a brand, concentrating on the commercialisation and that’s why we’re probably top 2-3 in terms of our penetration in the market.

[Chris Stening]
Dominic, thank you ever so much for your time. Really appreciate your insight, you enjoy the rest of your day. Thanks very much.

[Dominic Kearns]
Thanks, thanks guys.