Fibre to the Home and Take-up Tracker: Interview with Graeme Oxby

In this episode, Mark Menzies, Director at Eight Advisory, and Chris Stening, Senior Advisor at Eight Advisory, sit down with Graeme Oxby, CEO of Community Fibre, to explore take-up growth, overbuild impact, and long-term pricing strategies. Graeme shares insights on Community Fibre’s impressive penetration rates, the role of pricing in market disruption, and why strategic execution is key for Altnets to thrive.

[Chris Stening]

Hi, I’m Chris Stening, Senior Advisor with Eight Advisory and I’m delighted to be here today with Graeme Oxby, CEO at Community Fibre and Mark Menzies, one of our Directors here at Eight Advisory. So, Hi Graeme very nice to have you on today.

[Graeme Oxby]

Hi Chris and Hi Mark. Very good to be here, happy to just talk with you.

[Chris Stening]

Good, so just tell us a little bit about Community Fibre and where you guys are at.

[Graeme Oxby]

Happy to do that. Community Fibre is London’s largest alternative full fibre broadband network. We have a 1.3 million homes ready for service that you can connect within the next 48 hours if you wanted to. We’ve made good strides in our take-up of our penetration rate now over 25% on an average basis. And we have older cohorts that are beyond 40% and often into 45% already.

We’re seeing what we believe is very good demand for alternative providers of broadband and with the other development of the business that you seem to continue to grow rapidly here as the months go by and that’s been very pleasing. Also just to say that we are one of the few that are profitable now in terms of EBITDA profitability.

We’ve been profitable from April last year and continue to grow and grow in that dimension. Overall, business is performing well and performing strongly, and I think proving demand for alternative providers of broadband services in London.

[Chris Stening]

That’s really good to hear. Let me sort of dive into some of the questions. Thanks for reading the report and hopefully you found it useful. The first thing we really wanted to explore is, should we as an industry be concerned that the Altnet take-up, yours may be different, in the last six months has gone up by 1%, whereas Openreach has gone up by 3%.

[Graeme Oxby]

It’s quite a complex question. We need to break it down a little bit to its component parts. Within the Altnet sector you’ve got obviously a large number of Altnets, some that are still growing their network very quickly. And that of course means that the pure maths of your customer growth versus your network growth aren’t always terribly flattering. I mean thats a factor in the 1%.

I think you do have a relatively small number of people who are really driving a much bigger take-up growth than the 1%. Proving that there is demand for an alternative provider in all sorts of different parts of the country.

And then of course you’ve got a relatively large number of small Altnets who have not really been obsessed about customer take-up in a meaningful way. And they are the businesses where their take-up is low and of course that brings the average down quite a lot overall.

In comparison to Openreach you are talking about rather different model. Because Openreach are very much about migration of existing copper customers to fibre with their sort of big brand partners. Obviously, it’s much easier to migrate a customer you already have than just to find a new one. And of course, the Altnets are finding new customers. Whether they be wholesale Altnets or retail Altnets, they’re all finding new customers.

The encouraging thing is that the big providers are losing lines or are not growing their lines very quickly at all. And that is as you know testament to the fact that the Altnets are starting to eat into the market, and your own report shows the growth of the Altnets into the total market share and we should focus on that.

But certainly, the core of the question is a mixed bag. There’s some very strong performers that some are still growing very quickly but growing a network may be faster than a customer base. And probably a few too many who are not really growing fast enough for the network they have in terms of their obsession around customer acquisition.

[Chris Stening]

Thank you.

[Mark Menzies]

Very good Graeme. One question we had is, in terms of overbuild, how concerned are you about that issue and I mean overbuild by other Altnets, Virgin Media, NexFibre and was quite keen to get your views on overbuild. In particular, how that impacts where you plan to build in the future.

[Graeme Oxby]

Overbuild is a really interesting topic. Our experience has been consistent in the last four years or so. It’s that a little bit of overbuild is a good thing. We have found that our take-up rates are consistently higher in areas where there’s some overbuild than where there’s not overbuilt. But when you think about it, it’s pretty logical because it means that it’s really a product of there being more awareness in the area of the fact that there is a different sort of network available. And as long as you are very present at the time that consumers are thinking about maybe changing to fibre then you got a good chance of picking up some customers.

I think that is our sort of experience of overbuild. Now of course you don’t want too much overbuild but certainly in the short term we think a bit of overbuild is pretty healthy. And that’s both if you turn up a little bit late or if you’re ahead of the pack. But what you definitely don’t want to do is turn up very late to the pack in particular where you’ve got multiple successful Altnets. Then I think is that you should definitely not be pursuing a build strategy.

We all have to acknowledge that of course Openreach will be everywhere due course, Virgin or NexFibre are going to build out their network or refresh their network.

Now I think that we should all be pretty confident that we can compete effectively against those networks. We and another number of Altnets are proving that there is demand proving that customers will switch. And so I don’t think we should fear the fact that Openreach have got their network nearby or indeed the Virgin or NexFibre have got their network nearby. We have large components of our proposition which I think are very appealing to consumers and they’re happy to switch. I didn’t think we should shy away from that sort of overbuild.

But overall, we found it to be quite a positive experience and maybe not what we or what other commentators would typically expect someone like me to say. But so far it’s been okay, you just need to be careful. In terms of future builds you take into account, how long an alternative network has been present, how successful they are.

There are quite a lot of networks that have been built and turned up and there’s no overbuild and they don’t have many customers. It’s not as if just being present as a non-incumbent is a route to success. You really have to work it. From the sales and marketing point of view you have to make sure you win the customers.

You have to look at the areas you’re thinking about building in, take quite a considered view around who’s there, how long been there, how successful they’ve been and do you think you’ve still got enough firepower within your proposition  to steal some share from the incumbents which I suspect most Altnets do have that capability.

[Chris Stening]

Thanks. One of the questions we wanted to ask was just around sort of pricing and ARPU. Because what we’re seeing especially more in metropolitan areas is pricing is super competitive, and Ofcom have said has come down 4%. You guys are very competitive in your markets. Just wanted to get a view on, is that current level of pricing and ARPU really sustainable for long term business growth.

[Graeme Oxby]

We believe it is, to be honest with you. Full Fibre is transformational technology, runs in a much lower cost base and it’s got enormous capabilities in terms of the speeds that it will deliver over the next 10-15-20 years yes. So, we’re very much just at the beginning of the speed journey.

And the other fact of course is that Broadband is wildly overpriced here from incumbents.  People are paying too much for not a terribly quick service and generally not good customer service. And so there is room to take share.

But as part of any challenger taking on the incumbent, pricing is always a key component it always has been and it always will be and your pricing needs to be eye catching. We’ve got to make this technology available to everybody. It shouldn’t just be left to relatively small number of people who can afford to pay very high prices for very high speeds.

The fact that this is transformational means that we can transform the market by making these sorts of speeds available to everybody for not a terribly large amount of money.

And I think that’s really important part of what the Altnets are doing. After all it’s why there are many billions of pounds that were put into the market. You have to win share from the incumbents who have consistently not done that. They left high speeds and high prices in the market and meaning that most people couldn’t access it.

Our job is to be transformational as Altnets. That’s why we exist, that’s why Ofcom likes us because we’re doing something different, and something new and providing yeah essential connectivity for the vast majority of the population.

So pricing is super important and it’s important to have a full network. There’s quite a number of highly priced empty networks. If you going to build a network, you want people to use it and you want people to fill it. And pricing is one of the components of that and it’s really important and shouldn’t be shied away from.

Now of course the question comes in is it sustainable, you know pricing cheap to gain share and you’ve clearly got to make sure that it is sustainable, that it’s profitable. Now we start off lucky in the sense that the networks run at lower costs. These are networks that have a lower cost base to support and grow and indeed to sort of adapt in the future.

That’s a good start but you can’t just rely on that alone. You know, you do actually have to be very focused on running a really lean business, if you’re going to charge low prices. And that means that you need to not try and become a big telco, avoid the organisational structures of big telcos like the plague because they are great ways of spending lot of money and slowing things down. And you absolutely have to focus on getting the customer experience right, first time and every time. Because that strips out enormous amounts of bad cost from the business and if you get it right first time you don’t bear much cost from a customer. They stay happy and you’re not spending a lot of money answering the phone calls etcetera.  So, you can grow with relatively low ARPUs compared to the existing market but with increasing profitability.

Our model has been very much to drive growth, to fill the network, but also to run a very lean business. And that’s why our EBITDA has been improving every month. And whilst our customer base has been growing dramatically, our actual cost base has been falling steadily every single month.

You can do it, but you got to really focus on it and become really operationally lean. We would say it’s sustainable. We are at the beginning of a multi-Gig world and they will be room for further pricing as the speeds increase.

On the networks that certainly some of us have been building, they will already cope with 10 Gig. And we’re charging people for one. Unsurprisingly, they’ll be a bit more money to come from 2 3 4 5 6 7 8 9 Gig product speeds. And that is something that we started but it’s going to run a long time and we can generate incremental ARPUs as demand for higher speeds increases.

[Chris Stening]

You guys are currently profitable, you’ve got very competitive pricing. You clearly got the calculations right.

[Mark Menzies]

Very good, it’s the last question I wanted to cover. You touched on earlier in the maturity of a fibre business as the network is being built, and then there’s that second critical phase which is monetising that network investment driving penetration.

Your overall penetration is quite strong 25% and when we look at your more mature cohorts, we see you’re getting closer to 45% which is very high. What do you think is driving such cohort performance and whether you see that is where your overall penetration is heading

[Graeme Oxby]

Yeah, it’s interesting I mean it’s older cohorts that are in the 40s and 45%. So very strong and interesting, they keep on growing even though they’re 45%, they still keep on ticking up over time. And that’s really a reflection of the fact that the market has new people coming in every week. And new consumers are considering their broadband choice cause their contracts coming to an end every week of the year.

As long as you are present and as long as your proposition is strong and especially in areas where you’ve got very high take-up that the word of mouth is really strong. So, people saying really good things about you. Then you get on the customer’s consideration list and ultimately, they can choose you.

We are quite encouraged not just about 45% but the fact that we even think it could go even further than that. And then you say, they’re the old cohorts, there’s no competition etcetera. When we look at the new cohorts when there is more competition then actually our rate of take-up is faster more than it was for the 45% cohort. And that’s been increasing every year. I think probably as our sort of presence has become more widely known maybe as our sort of reputation’s got a bit better. Our run rate on the way to that 45% has got faster as the years have gone by. We don’t see anything in terms of trajectories that give us any real cause for concern around that slowing down.

As I mentioned even when there’s some competition, we still do rather well. We can anticipate certainly very high take-up levels the 30s-40s as a good sort of average across the board. Now this of all of course is without the benefit of wholesale. We do have some strong wholesale partnerships which we’re in the process of activating.

We believe we’ll further add to the rate of take-up on our network and obviously be a little bit of cannibalization but net it will be positive.

I think we do feel pretty encouraged by the rate of growth and the ability of those early cohorts to carry on growing and the ability of our more recent cohorts to catch up with them. It feels pretty strong and you see that in a few other providers as well. It is largely reflective of the fact that in the market people are coming in regularly every week. And as long as you’re present and as long as you got something strong to say to them, then you got a chance of winning their business.

[Chris Stening]

Good, Graeme, absolute pleasure to talk to you today. Thank you ever so much for your time and we will look forward to catching up soon. Thank you.

[Graeme Oxby]

Love it, thank you very much, very good to talk with you. Thank you Chris, thank you Mark.