BT's Long Game, More ADSL2+ and 21CN

IanFogg | May 01, 2008, 02:29 PM

BT's launch of ADSL2+ with 21CN yesterday isn't going to make a vast difference to the ISP retail market, or to consumer broadband speeds. Initially, under one million households will benefit, none of which are in London. Even by May 2009, when BT will reach approx half of UK households, its footprint will be largely within the area already covered by the existing LLU ADSL2+ networks of O2 and Sky, and also within VirginMedia's HFC network geography which offers similar speeds.

BT's major competitors -- Sky, Carphone Warehouse, O2, Orange, Tiscali -- have largely switched away from using BT's wholesale packages in urban areas. So, the main short term beneficiary of this launch, will be BT's retail division plus the declining mass of small ISPs that lack their own LLU network. For those independent niche ISPs, this launch may be too little, too late. Further consolidation is likely. Ironically, BT may be the purchaser of the small guys, if regulators continue to allow it.

The long term impact is quite different. BT is building the foundations for putting fibre into the last mile, eventually. To gain speed benefits from fibre, the backhaul capacity to the exchanges and BT's core network capacity needs to be greatly increased. Otherwise, the speed bottleneck shifts from the quality of the copper telephone line in the last mile, to back within the ISP network. (Even now, the UK has seen some issues even with ADSL1 backhaul capacity limiting speeds for users with telephone lines that run at the full ADSL1 speed of 7-8Mbps, i.e. contention.)

BT is playing the long game, and as a result is ceding ground in retail broadband acquisition now. This is a risky strategy given the ability to execute of BT's ISP competitors, most especially Sky.