Article

Telco Fiber Networks: If You Build It, Will They Come?

Some operators struggle to attract customers to their newly built networks. Emerging leaders are winning with a hyperlocal, hyperpersonalized approach.

By Will Menz, Cory Needle, Daniel Taraba, and Geraldane Gumba

First published on octubre 10, 2023
min read


Executive Summary Telcos, investors, and governments have spent hundreds of billions of dollars to expand fiber networks. However, some fiber network operators are struggling to acquire enough customers to make good on these massive investments. Generating a return on investment typically requires at least 35% uptake of available network capacity over the long term; many are falling short. Leading companies take a hyperlocal, hyperpersonalized approach to customer base management and rapidly test commercial motions before scaling them up. As fiber networks expand around the world, telecommunications executives have run into a harsh reality: Attracting customers can be more difficult than building the networks. Governments, telecommunications operators, and investors have poured hundreds of billions of dollars into the ground to build full fiber networks that deliver high-speed broadband to homes and businesses. The investments include about $32 billion from US private equity firms between 2019 and 2022, about €12 billion spent in Italy over the past decade or so, €50 billion committed in recent years in Germany, and about £37 billion committed in the UK. These investments are increasing access to faster fixed-line connectivity. Some countries’ fiber networks have rapidly expanded, with coverage around 90% or higher in the United Arab Emirates, China, and Qatar. In Europe, Latvia, Iceland, and Portugal lead, with more than 90% coverage each. Building fiber has happened more slowly in other countries but nevertheless continues to advance. However, actually acquiring customers to make use of these investments—and thus deliver returns for investors—is another story. Customer adoption of the available capacity (what the industry typically calls “uptake” or “take-up rate”) of fiber service varies across and within countries. While some see high adoption levels, fiber uptake in many countries around the world has been slow, in some cases lagging between 10% and 30% (for example, in the UK and Germany). That’s substantially below typical levels required for sustained value creation. According to Bain analysis (see Figure 1), laggards plateauing at, for example, 20% long-term uptake will earn returns much lower than the typical cost of capital. The threshold for value creation is typically about 35% long-term uptake, as illustrated by middle performers. The leaders who truly succeed in driving uptake (over 50%) can deliver returns well above the cost of capital. The rewards are significant: Increasing customer uptake by 1 percentage point increases the internal rate of return by 0.3 percentage points. Figure 1 Fiber network operators typically must surpass 35% long-term customer uptake to generate a return exceeding the cost of capital Of course, this picture depends on the economics specific to each telco’s fiber network buildout. For example, the costs to build in rural locations are typically higher than in urban areas. In the UK, capex per household is estimated at less than £500 for the “easiest” 20 million homes to connect, rising to more than £2,000 for the “most difficult” 1 million homes. Furthermore, competition intensifies as networks become overbuilt, and the average revenue per fiber user declines (this is the case in Spain, for example). The result is needing significantly higher network uptake to achieve sustainable returns. Several challenges are making it difficult for fiber network operators to attract customers. The basis of competition is hyperlocal for fixed-line connectivity. Networks are frequently built on selective streets with limited densification. This means the traditional approach of regional or national marketing campaigns is often ineffective for local fiber builders and retailers. Industry leaders are creating more targeted offerings to meet customer demand, piloting the latest AI capabilities. On top of everything, inflation and higher interest rates are putting additional pressure on margins and cash flow, which limits the ability to invest in customer acquisition and compounds the difficulty to achieve uptake goals. As network operators try to increase customer adoption in the most value-accretive way, the emerging leaders hold useful lessons. Recognizing the hyperlocal basis of competition, leading fiber builders and retailers have gained an edge through hyperpersonalized targeting and conversion of potential customers. Tailored marketing that resonates more with consumers tends to increase the probability of converting them into customers; lower spending per customer or cohort of customers results in stronger economics and returns. Delivering this hyperlocal, hyperpersonalized approach requires the right people with the right knowledge and skills. It’s the difference between following competitors in placing billboards in local build areas vs. knowing how to target the right message, at the right time, to the right individual. Leading companies focus on two activities to achieve profitable customer acquisition. Get hyperlocal insights from the front line. The most successful fiber network operators work to deeply understand potential customers’ attributes (e.g., network availability, demographics); key purchasing criteria (e.g., contract structure, ability to bundle services); and purchase triggers (e.g., moving to a new home or increasing work-from-home activity). This sounds obvious, but emerging leaders are investing in sophisticated capabilities in data analytics, marketing science, and geospatial technology that provide detailed, granular insights down to the street and household level. Is this building a multistory apartment complex in a densely populated urban area where consumers have more connectivity options? Or is it a single-family home in a suburb or rural area? Leaders use that information to design more effective commercial activities. Rapidly test new commercial motions, then scale them up. Using the hyperlocal insights, leading fiber network operators are applying tactics that have paid big dividends for technology start-ups. These include rapid test-and-learn cycles for sales and marketing campaigns; upgraded digital sales journeys; a fulfillment process with seamless customer engagement; and translating local commercial efforts into a core capability across the organization. One US broadband provider has accelerated uptake of its fiber network using these tactics. The company leveraged an AI-powered analytics tool to understand addressable market opportunity and customer lifetime value at a hyperlocal level, based on demographic, financial, competitor, and network data. From this granular view, the company defined a series of cohorts of potential customers and developed personalized acquisition campaigns, which were then refined through testing and learning. This boosted gross customer additions by 15% over four months across social media, online search, and direct mail marketing channels. The broadband provider anticipates subscriber growth to accelerate even more as these capabilities mature. As the fiber landscape continues to grow and evolve, the question remains: Will customers follow? The answer won’t be positive for all companies. High interest rates continue to apply pressure, and consolidation in some markets appears likely. Companies can put themselves in the best position to win if they build their network optimally and truly understand their potential customer base at the building level. And given the challenges ahead, the winners will need to act fast.

Executive Summary

Telcos, investors, and governments have spent hundreds of billions of dollars to expand fiber networks.
However, some fiber network operators are struggling to acquire enough customers to make good on these massive investments.
Generating a return on investment typically requires at least 35% uptake of available network capacity over the long term; many are falling short.
Leading companies take a hyperlocal, hyperpersonalized approach to customer base management and rapidly test commercial motions before scaling them up.

As fiber networks expand around the world, telecommunications executives have run into a harsh reality: Attracting customers can be more difficult than building the networks.

Governments, telecommunications operators, and investors have poured hundreds of billions of dollars into the ground to build full fiber networks that deliver high-speed broadband to homes and businesses. The investments include about $32 billion from US private equity firms between 2019 and 2022, about €12 billion spent in Italy over the past decade or so, €50 billion committed in recent years in Germany, and about £37 billion committed in the UK.

These investments are increasing access to faster fixed-line connectivity. Some countries’ fiber networks have rapidly expanded, with coverage around 90% or higher in the United Arab Emirates, China, and Qatar. In Europe, Latvia, Iceland, and Portugal lead, with more than 90% coverage each. Building fiber has happened more slowly in other countries but nevertheless continues to advance.

However, actually acquiring customers to make use of these investments—and thus deliver returns for investors—is another story. Customer adoption of the available capacity (what the industry typically calls “uptake” or “take-up rate”) of fiber service varies across and within countries. While some see high adoption levels, fiber uptake in many countries around the world has been slow, in some cases lagging between 10% and 30% (for example, in the UK and Germany). That’s substantially below typical levels required for sustained value creation.

According to Bain analysis (see Figure 1), laggards plateauing at, for example, 20% long-term uptake will earn returns much lower than the typical cost of capital. The threshold for value creation is typically about 35% long-term uptake, as illustrated by middle performers. The leaders who truly succeed in driving uptake (over 50%) can deliver returns well above the cost of capital. The rewards are significant: Increasing customer uptake by 1 percentage point increases the internal rate of return by 0.3 percentage points.

Fiber network operators typically must surpass 35% long-term customer uptake to generate a return exceeding the cost of capital

Of course, this picture depends on the economics specific to each telco’s fiber network buildout. For example, the costs to build in rural locations are typically higher than in urban areas. In the UK, capex per household is estimated at less than £500 for the “easiest” 20 million homes to connect, rising to more than £2,000 for the “most difficult” 1 million homes. Furthermore, competition intensifies as networks become overbuilt, and the average revenue per fiber user declines (this is the case in Spain, for example). The result is needing significantly higher network uptake to achieve sustainable returns.

Several challenges are making it difficult for fiber network operators to attract customers. The basis of competition is hyperlocal for fixed-line connectivity. Networks are frequently built on selective streets with limited densification. This means the traditional approach of regional or national marketing campaigns is often ineffective for local fiber builders and retailers. Industry leaders are creating more targeted offerings to meet customer demand, piloting the latest AI capabilities. On top of everything, inflation and higher interest rates are putting additional pressure on margins and cash flow, which limits the ability to invest in customer acquisition and compounds the difficulty to achieve uptake goals.

As network operators try to increase customer adoption in the most value-accretive way, the emerging leaders hold useful lessons.

Recognizing the hyperlocal basis of competition, leading fiber builders and retailers have gained an edge through hyperpersonalized targeting and conversion of potential customers. Tailored marketing that resonates more with consumers tends to increase the probability of converting them into customers; lower spending per customer or cohort of customers results in stronger economics and returns.

Delivering this hyperlocal, hyperpersonalized approach requires the right people with the right knowledge and skills. It’s the difference between following competitors in placing billboards in local build areas vs. knowing how to target the right message, at the right time, to the right individual.

Leading companies focus on two activities to achieve profitable customer acquisition.

Get hyperlocal insights from the front line. The most successful fiber network operators work to deeply understand potential customers’ attributes (e.g., network availability, demographics); key purchasing criteria (e.g., contract structure, ability to bundle services); and purchase triggers (e.g., moving to a new home or increasing work-from-home activity). This sounds obvious, but emerging leaders are investing in sophisticated capabilities in data analytics, marketing science, and geospatial technology that provide detailed, granular insights down to the street and household level. Is this building a multistory apartment complex in a densely populated urban area where consumers have more connectivity options? Or is it a single-family home in a suburb or rural area? Leaders use that information to design more effective commercial activities.

Rapidly test new commercial motions, then scale them up. Using the hyperlocal insights, leading fiber network operators are applying tactics that have paid big dividends for technology start-ups. These include rapid test-and-learn cycles for sales and marketing campaigns; upgraded digital sales journeys; a fulfillment process with seamless customer engagement; and translating local commercial efforts into a core capability across the organization.

One US broadband provider has accelerated uptake of its fiber network using these tactics. The company leveraged an AI-powered analytics tool to understand addressable market opportunity and customer lifetime value at a hyperlocal level, based on demographic, financial, competitor, and network data. From this granular view, the company defined a series of cohorts of potential customers and developed personalized acquisition campaigns, which were then refined through testing and learning. This boosted gross customer additions by 15% over four months across social media, online search, and direct mail marketing channels. The broadband provider anticipates subscriber growth to accelerate even more as these capabilities mature.

As the fiber landscape continues to grow and evolve, the question remains: Will customers follow? The answer won’t be positive for all companies. High interest rates continue to apply pressure, and consolidation in some markets appears likely. Companies can put themselves in the best position to win if they build their network optimally and truly understand their potential customer base at the building level. And given the challenges ahead, the winners will need to act fast.