This post is by Julia Kukiewicz, editor of Choose.net, a UK consumer site that has covered the consumer broadband market since 2004.
Earlier this year, BSkyB’s broadband business bought Telefonica’s O2 and Be broadband brands. O2 customers will join Sky over the next few months, shrinking the UK’s famously competitive market by two ISPs. However, while consumer choice has certainly been reduced, the O2 sale doesn’t really change the market’s state of play by that much.
UK broadband is dominated by four big providers: BT, which has about 30 per cent of the market, and Virgin Media, Sky and TalkTalk, which take 17-20 per cent each.
Only about 15 per cent of UK households get their broadband from elsewhere: squished into that percentage alongside O2 and Be broadband there’s Everything Everywhere, Zen Internet, Eclipse and a host of others.
Now, there’s a case that O2 were neglecting their fixed-line business, never setting a date for fibre, for example, precisely so they could sell it to one of the bigger players without the sale being referred to the competition commission but that’s a stretch, even when they were at their biggest O2’s market share was small.
As of Q1 this year the provider has 519,400 subscribers; after the subscribers merge Sky will be left with around 20 per cent of the market.
It’s also worth bearing in mind that the UK broadband market has always been dominated by a few really big players. In 2006, five big companies took 82 per cent of the market share. Some of those companies, like TalkTalk, are still around today, although Sky was at that point a distant outlier with just 2 per cent of subscribers.
The end of unbundling
The UK isn’t exactly losing its competitive market, then, but it is getting further and further from what has long been the source of its competitiveness, unbundling.
When BT Openreach was launched in 2005, providers were suddenly able to ‘unbundle’ services from BT’s copper telephone network, a jolt to the market that reverberates even today. There are now 70 times more unbundled lines than there were in 2005.
From 2005 to today providers have come and gone and consumers have been the beneficiaries: a home broadband connection is cheaper in the UK than almost anywhere else.
As technology has moved on, however, unbundling’s effects attenuate.
“Local loop unbundling has largely run its course and any broadband provider that wants to remain relevant in the future will need to outline a path to fibre,” Ovum research commented on the O2 sale.
As we’ve reported previously on Choose, the move to fibre is largely consolidating the hold of the big four ISPs.
As Ovum put it, “the market is now left with players that are able to spread the cost of fibre across more services, with its attendant economies of scope benefits.”
In other words, only providers that can also make money with other services, particularly lucrative pay TV, are likely to be able to withstand the costs of providing fibre.
The UK’s broadband market may still be competitive, but the O2/Be sale is certainly a signal to the market shrinking to fibre.