When the UK government re-announced its goal of 85 percent gigabit broadband coverage by 2025, it was a step back from its pledge for nationwide coverage.

Slow-moving buildout progress spurred them to adjust the minimum coverage goalpost when it seemed they would fall short. But things have since changed. Ofcom predicts that over 97 percent of the UK will be covered by gigabit broadband by May 2027.

This dramatic boost in coverage has been driven by alternative network providers (altnets) that have emerged to rival broadband giants, like Openreach. The positive disruption caused by altnets has seen gigabit-capable coverage reach 84 percent, according to Ofcom.

The UK government’s Project Gigabit scheme has also had a huge impact, making funds available from its pot of £5bn ($6.21bn) to service providers across the country. But, it’s not all been smooth sailing and altnets are now confronted with a harsher investment climate and increasing overbuild in their race to expand, whilst simultaneously feeling the pressure to sign on more users.

Closing the digital divide

Altnets entered the market to help close the digital divide and while private investment might have got them started, some have also been buoyed by significant public funds made available to them in the shape of Project Gigabit.

At last count, altnets had been awarded 32 contracts under the scheme, although that number has since increased. Considering that around 100-130 altnets currently operate in the UK, it’s clear to see that they are in no small part responsible for the UK’s progress towards that 85 percent coverage goal.

Due to their smaller size, altnets have also been able to show far more agility than incumbents in the sector. Moving into underserved areas and providing alternative connectivity solutions has challenged larger ISPs. This new pressure has spurred traditional providers to speed up their deployment, invest in customer services, and reduce their prices in a bid to stay competitive.

By focusing their efforts on local areas, altnets have been able to take a more grassroots approach, engaging closely with the local government and community to gather feedback and tailor connectivity solutions for hard-to-reach areas. Their comparatively personal approach has often been a key differentiator in helping to drive engagement and uptake in regions where incumbent ISPs are also quite prominent.

Less is more: overcoming overbuild & the investment climate

Unfortunately, this ‘altnet boom’ can’t continue indefinitely. With more than 100 altnets currently operating across the UK, the market is reaching capacity with investment increasingly harder to secure. Rising interest rates have pushed up debt costs and made it much harder to access private capital.

Despite successfully challenging the incumbents, altnets are still dwarfed by their competitors’ immense budgets. The incumbents have responded to the competition, often duplicating construction of networks in the same areas that the altnets have invested in.

This level of overbuild is unsustainable, with altnets unable to compete with larger providers in terms of budget, resources, and scale. Openreach, for example, has a full-fiber network that now covers 46 percent of all UK premises and is expected to reach 76 percent by 2026. With many altnets focused only on certain regions, it’s impossible for any to match these figures alone.

Overbuild also brings with it environmental implications, wasting resources, and disrupting local ecosystems unnecessarily. With concerns around the practice rising from all sides, Ofcom looks set to address this, with many expecting regulatory intervention to combat overbuild. Incoming regulations are set to introduce new strategies to ensure a sustainable rollout that benefits both the economy and the environment.

Yet even when buildouts are completed and full-fiber made available, altnets are struggling to convert availability to paying, connected customers. Research from GlobalData found that despite significant investments in infrastructure, many altnet operators struggle to achieve profitability, with insufficient customer acquisition as a significant factor. Ofcom’s latest Connected Nations Report supports this, highlighting that it takes on average four years to reach a 53 percent likelihood of full-fiber take-up at a property.

These challenges have all fed into the expectation of consolidation amongst altnets, with many believing it to be inevitable. These deals have already started, with one of the largest altnets, CityFibre, having already carried out a string of altnet acquisitions over the past few years.

Next stop? Collaboration

Consolidation might be a logical step for some larger altnets, but it’s not feasible for every company. Many resist the idea, seeking to keep hold of their independence. In this scenario, partnerships are another viable route forward.

An approach to facilitate partnership is Open Access Networks (OAN), which sees service providers opening up network infrastructure to other providers – be it other altnets or legacy providers – allowing multiple providers to deliver services from the same network assets. This can create new revenue streams and expand market reach for altnets, helping them monetize their networks in areas where they are struggling for subscribers.

Another opportunity for altnets lies in extending their network reach and services through wholesale partnerships. By linking regional and local fiber networks with larger national and international data routes, they can expand their services into new areas, evaluating the addressable market in those regions before committing to deploying their network infrastructure. For example, altnets CityFibre, Lightspeed, and Vorboss, have all recently developed partnerships to expand their reach and availability of services.

As altnets seek core network partners to support their growth plans, finding a partner with the right cultural and service fit is essential. They want to work with companies that focus on offering flexible, high-capacity solutions, that support their rapid installation plans and close community engagement, without being limited by the rigid structures and bureaucracy that often characterize partnerships with larger providers.

As this dynamic market continues to evolve, profitability and growing subscribers will become increasingly important in access to new finance and altnet expansion, but taking a long-term, strategic view on how network resources can be shared could lead to a much-needed win-win scenario over the next few years.