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From March 30, Virgin Media in the UK will offer downstream broadband speeds of 100–300Mbps to a wide swath of consumers, along with the new Virgin TV V6 box, in its revamped line of bundles. It is the broadband speed tiers that are the most notable: Offering 100Mbps as the base speed tier is a coup that highlights the gap between Virgin Media and its main (largely xDSL-based) competitors BT, Sky, and TalkTalk, whose current top speeds – at least that are widely available – are 76Mbps. As the CEO said in the firm’s press release, Virgin Media is “starting where they finish.” This move has the potential to disrupt the UK broadband market and provides a lesson for telcos with cable/FTTP competitors.

Telcos must factor in cable and other technology evolution paths, not just their own

Speed has always been one of the main differentiators for broadband service providers, but with consumers’ seemingly endless appetite for high-quality video matched by great strides in next-generation access deployments, the focus on speed has never been so great. Not so long ago, 30Mbps seemed huge. In fact, in 2013 the UK’s Broadband Stakeholder Group published a report that predicted that the median UK household would require only 19Mbps by 2023, with the top 1% needing speeds of only 35–39Mbps. Now we are talking speeds of hundreds of megabits – over 1Gbs in some countries. Whether consumers truly need such high speeds is immaterial: Broadband speed and value for money continue to come out on top when it comes to broadband purchasing decisions, so offering more for the same price remains a valid market differentiation. According to Ovum’s Consumer Broadband Forecasts, 34% of all consumer broadband lines will be of speeds greater than 100Mbps as of end-2021, with 5% at 1Gbps or more.

Virgin’s higher speeds, up to 300Mbps, are based on a combination of its existing EuroDOCSIS 3.0 network and FTTP that it is deploying as part of Project Lightning, which is aimed at expanding its upgraded footprint to 17 million premises by the end of 2019. It is also trialing DOCSIS 3.1 and might deploy it this year, which along with FTTP can bring even higher speed capabilities: up to 1Gbps.

Virgin Media is of course not the only cable/FTTP player to be using its network advantage to increase the stakes against xDSL-based competition. Waoo in Denmark, Numericable in France, and Comcast in the US are examples of operators that have used network upgrades and higher broadband speeds with the aim of capturing market share against incumbent telcos.

xDSL-based players are therefore now playing catch-up. Two years ago, in our Fixed Voice and Broadband Outlook report, knowing that many cable companies had completed DOCSIS 3.0 deployments and were moving on to a mix of fiber and DOCSIS 3.1 upgrades soon, we recommended that telcos facing cable competition should not wait for G.fast, because the standard was still being considered and because of constraints such as the need to install several nodes, bringing fiber closer to the customer, and reverse powering; but should instead consider existing alternatives to offer higher speeds. This is exactly the type of situation we had in mind. But it’s not so much about the technology.

In these two years, many of the G.fast hurdles have been tackled. G.fast has been standardized, and variants that will offer greater reach and higher rates are being developed. BT has had successful trials and expects to roll out G,fast to 10 million homes by 2020 and “most of the UK” by 2025. BT is also trialing XG-Fast, the next step on the G.Fast evolution ladder, and BT, Sky, and TalkTalk all have ongoing FTTP initiatives.

But this leaves a window of opportunity that non-DSL based operators can exploit. G.fast might enable DSL players to sweat existing assets, but it still takes time to deploy. There is no question that BT and others like it can eventually match Virgin Media in offering 100Mbps as a base tier, but its window to do so and retain customers just shortened considerably. In the meantime, it leaves itself vulnerable to churn and disruption. In addition, next-generation FTTP and HFC technologies such as XGS-PON and Full Duplex DOCSIS 3.1 continue on their path toward standardization, and telcos (and cable companies) need to be aware of their evolution path and factor it into their next-generation access deployment plans.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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