Fibre to the Home: Take-up & Churn – Interview with Dana Tobak

In this episode, Chris Stening, Senior Advisor at Eight Advisory, and Adam Bradley, Lead Partner for Telecoms and Digital Infrastructure, sit down with Dana Tobak, CEO of Hyperoptic. The discussion covers Hyperoptic’s impressive penetration rates, the dynamics of competing with incumbents, and the company’s focus on customer experience and operational excellence. Dana provides valuable perspectives on managing churn, the importance of first-mover advantage, and Hyperoptic’s expansion strategy, including leveraging the Openreach network to better serve customers and drive growth.

[Chris Stening]

Hi, everybody. I’m Chris Stening, Senior Advisor Eight Advisory, and I’m delighted to be here today with Dana Tobak, who is the CEO of Hyperoptic and Adam Bradley, who is the lead partner on our telecoms and digital infrastructure

Practice.

This interview is following up from our recent report that we did on take-up and penetration. So delighted, Dana, that you’re here to answer some questions for us. Thank you.

[Dana Tobak]

Thanks, Chris. And good to see both of you, it’s an absolute pleasure to be here and hoping I can help

fill out the picture for people of what’s happening in Altnet and Hyperoptic world.

[Chris Stening]

Great, great. Well, the first thing we wanted to really talk to you about was penetration. So as you’ll have seen, take-up average across the Altnets is about 20%. BT have recently announced I think they’re 36%. Clearly, they’re doing a very different job in terms of migrating customers. We sort of wanted to understand, you know, what was going on at Hyperoptic and how you sort of compared and fitted it within that.

[Dana Tobak]

Yeah. So for us, our overall penetration is just passing the 40% mark across our portfolio. Now, keeping in mind we’ve been doing this for about 15 years, and obviously we’ve got different parts of our business and different ages of those networks. So when we started with our retro buildings, we picked extremely wisely. We focused on density, and we always focus on places where at that point the speed would have been really horrible from others. We then added our new build market, which is where we aim to be there as soon as people move into the building.

And that’s actually our most successful pillar of our business. And it’s only recently that we’ve started doing, you know, single family homes. So it’s still early days in that kind of cohort and market segment. But fundamentally because of our focus early days on the large residential blocks and then new builds, we see a great take-up across the network.

[Chris Stening]

Just to come back to the point, Dana about the sort of overall penetration, you know, Altnet ‘s tracking about 20% and BT now, I think 36%, is that big gap something that we should worry about? And is there anything that can be done to sort of close that?

[Dana Tobak]

Openreach has the advantage of existing customer base on their FTTC network, and that means that they are aiming

to get as many of those customers transferred onto their own network, which is not something that’s available to the Altnets. Now, some of the wholesale Altnets may have their tenants who can move customers over, and that would, I assume, be the case specifically for CityFibre, for example.

But I think we have to be really careful about how having that existing customer base as an SMP provider, makes a difference in how they price in and kind of incentivise people to move their tenants from the FTTC network onto their own FTTP network. I think most Altnets are a bit worried that there is an opportunity for us to kind of miss the line of where that SMP power should be held back. And I know Ofcom’s looking at it, but I think it’s something we have to be very wary of. There’s a lot of customers on that network. There’s no lack of customer and investment going on to the network. And additional incentives that are non-competitive do not help the overall market structure.

[Chris Stening]

That’s an interesting point because quite a big gap isn’t it? You know, it’s nearly double the penetration that they’re seeing relative to the remainder of the Altnets.

[Dana Tobak]

Correct.

[Chris Stening]

Okay, well that’s impressive stuff. And you said 40%. Is that an average across the whole piece?

[Dana Tobak]

Yes.

[Chris Stening]

Wow. I think that mght be market leading I think. It’s almost at the levels that KCOM see up in Hull actually.

[Dana Tobak]

Yeah I mean, I think for us, it’s how we approach the market, it’s how we obviously care for our brand and our customers. I mean, here, you know, our motto is we’re in your corner for our customers. And it’s really about just focusing on despite now our size, we try to make it seem like it’s a small business and if necessary, and it happens now and then, I’m still involved in the escalation path, and I make sure I’m on our daily calls to look at any customer issues that we’re not resolving as quickly as we want to.

So I think that really makes a difference for customers. And obviously for us, word of mouth continues to be an extreme way, an extremely important way for people to hear about us. So we see that as a great success metric

when we look across the business overall.

[Adam Bradley]

So, Dana, you mentioned that the business has been around for a while and you’ve had different strategies. But when we talk to other clients about their more mature cohorts, what we hear is that they haven’t seen any evidence of take-up, plateauing or flattening off. What’s your experience with your more mature cohorts?

[Dana Tobak]

Yeah, no, that’s a great question, Adam. I would say we we have seen some flattening in our older cohorts, but I would say it’s flattening in the 70-80%. So you know, part of that could be people. Because again we do focus on areas of multi dwelling units and city centres. And some of those early cohorts, the new builds again, were still city centre. So you often will get a certain amount of, empty units etc.. So, so there are some that are hitting that plateau. Obviously, we pay attention to that when we do have churn, we have a whole process for how we acquire someone moving in.

So,it’s really an area that we focus on a lot. I think our ISP team, every board meeting is hounded by show us those pen curves, show us how we’re doing, make sure you’re focused on the long term penetration.

[Chris Stening]

So one thing that investors would sort of ask us about, Dana, is the impact of overbuild. So what we did was we looked at the Openreach Overbuild, and we looked at a number of different players, and averaging out across the piece, we saw about a 6% variance between those areas that had been overbuilt and those that hadn’t. Okay. But the really important factor appeared to be who got into market first, not who built first, but who was actively marketing first.

Does that resonate with you? Is that what you see with Hyperoptic? And obviously you’ve got all those different markets that you’ve referenced.

[Dana Tobak]

The key, so just to be clear on new builds, we usually co-install with Openreach. So they also do an install on to most new builds. I think for us the key is we make sure that people can be live as soon as they move in. And that is a key focus for us. And that is really what underpins our new build orientation. And you know, there are very few Openreach is not there were early days whereby there were places where Openreach was still putting in FTTC, but for the most part everywhere we’ve gone for the last 4 or 5 years, has had Openreach and we don’t see it really impacting. What we do see, because of one touch switch generally as we see more churn in and when I say churn, I don’t mean, people leaving us, I mean churn movement in the marketplace where people are taking advantage of different pricing deals. But we win more than we lose. So from that perspective, it doesn’t impact pen, but it does. It does create, I would say, extra work in navigating the one touch switch process and the volume that that creates.

And what we’ve always done in other areas of the business is to really shy away from overbuild. So whether that’s in a network area or in a building itself. Now, there can be cases where we have been overbuilt by others, but very few where we would have knowingly overbuilt where Openreach or others were. So we have a very small segment of where we overbuilt others.

Now, of course, Openreach is starting to do more than they have been. They’re continuing to work at a great pace. We do see places where they come in, but kind of the secret sauce of our model is our focus on those multi dwelling units. And the key for us about doing the hyper zones. So these areas of network build that we’ve done in city centres is we looked for places where there’s a large portion of these smaller buildings. So it’s not only about putting fibre

down the street, but it’s about that USP that we have of getting wayleave signed and doing the installations into those buildings. So there are places where we might see some competition down the street, if you will. But it’s very rare that we see, especially in smaller buildings. Anyone who has paid attention to getting those wayleaves and doing that build.

So that really is our secret sauce. And part of the reason why we see the uptake and penetration as well as we have now, of course, in places where you’ve single family homes and there might be some overlap of networks, we are expecting that it will be more challenging to reach the same sort of pen curves as we did in places where we don’t have competition, but for now, the majority of our network, we are absolutely there first, if not the only ones there with the fibre product.

[Chris Stening]

Yeah, that certainly resonates with what a lot of other people have told us if you are there first and you’re in market first, you’ll win.

[Dana Tobak]

Yes. Look, customers want a great service. And, oftentimes they don’t know exactly what all the words mean and what to do. But you make a great offer. And what I would say for the Altnets, you know, most of us have really good brands. So there’s a real attention to the customer. I think especially with the ones that are vertically integrated, because then you have, you know, a sole responsibility for all of the customer experience relating to going live and solving issues.

So that means if someone calls my call centre, you know, they just go down the hall to the tech team to say, hey, how do we solve this? Or how do we get you connected? It is trickier dealing with Openreach. I don’t know about Cityfibre. I think we have like 0.2% overlap with the CityFibre network. But certainly with Openreach it’s a much more complicated process and most of the scaling ISPs that are on there, they have so many customers and so each one doesn’t get the attention that we can give our customers.

[Chris Stening]

And that vertical integration means that you can get your sales and marketing engine moving that much faster.

[Dana Tobak]

Absolutely.

[Chris Stening]

So you can then respond if there’s an issue much quicker when you have to deal with the customer fault. So absolutely, I see how that works.

[Dana Tobak]

You got it.

[Adam Bradley]

Okay so just moving on to the final question, Dana. You’ve already touched on churn and in our latest take up paper. We started to include churn as a metric which Altnets are starting to look at. Generally Altnet churn is much lower than incumbent churn, which is to be expected given most people are still in contract. We understand you’ve got a relatively high level of uncontrollable churn that, presumably from house moves talk to us a little bit about that. And whether that’s related to your recent strategy to use the Openreach network.

[Dana Tobuk]

Absolutely. Great question, Adam. I think, you know, we did announce earlier this year about the intent to, and we’re expecting to make it as well,  in Q1 to launch a live service on certain areas of the Openreach network. And it was absolutely a business case driven by continuing to provide service to so many of our customers that move off of the network. So about 85% of our churn is due to people moving. And we get, I think, within, 6 to 8 weeks, it’s about a 65% replacement rate. And if you go out a year, it’s about an 80-85% replacement rate.

So we are confident that is, you know, what’s happening. But ultimately the opportunit to continue to offer service to those customers and also reach a wider breadth of customers, we think is something to take advantage of. We’re so proud of the brand and customer experience that we offer that we’re really looking forward to our launch early next year.

[Chris Stening]

So that should really have an impact on your churn. Shouldn’t it? You’ll just pick all those customers off, in theory.

[Dana Tobak]

Yes, yes, and more as well. So we’re really looking forward to it. I mean, look, we appreciate the fact we’re entering in a competitive zone. Obviously the downside of of being on the Openreach network is there’s a lot of people who are offering service there, and that’s up to us to continue to differentiate with the great customer service

that we have.

[Chris Stening]

Dana, thank you ever so much. It’s been an absolute pleasure to talk to you. Thanks indeed.