CEO, International, BT Group plc
Clive Selley, Openreach CEO, on Ofcom Equinox 2 decision, full fibre build, job cuts, AltNets, & AI
24-May-23: Hot off the press, Clive and I share our reactions to Ofcom giving the green light to Openreach’s Equinox 2 discount scheme. Clive updates on Openreach’s target to build full fibre to 25 million premises by December 2026, and explains that the build will continue beyond 25 million after the target is reached. We talk about rural full fibre, the AltNets, the challenge of overbuild, and why Openreach is still offering asymmetric full fibre broadband when the AltNets typically offer symmetric, and so much faster upload speeds. We cover the 40,000-55,000 job cuts that BT announced rec...
Transcript (31 segments)
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Richard Tang0:00
Hi, I'm Richard Tang, CEO of Zen Internet, and it's my very great pleasure today to invite to our Rochdale HQ someone who is one of the most influential and highly respected people in our industry, CEO of Openreach, Clive Selley. Clive, very very warm welcome to Zen.
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Clive Selley0:20
Thank you for having me here.
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Richard Tang0:22
Yeah, great to have you here. Let's start about some news that is hot off the press this morning from Ofcom. Ofcom has decided not to prevent Openreach go ahead with their Equinox 2 discount program. Something that I am personally delighted about. Just want to hear your thoughts.
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Clive Selley0:44
Okay, well you're delighted and so am I, Richard. Equinox 2 was a fairly long time in the design. We went through a collaborative process talking to the team here at Zen but also the teams at many other big service providers. So we think it's a deal that's been designed collaboratively by the industry for the industry. Fundamentally, it delivers lower prices for fiber to the premise service, which I think is good for CPS like Zen and good for end customers because it takes away the cost barrier to getting highly reliable, high-speed service over full fiber broadband. And that's what surely all of us want.
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Richard Tang1:38
Yeah, yeah, absolutely, yeah, great news. I'm very happy, I'm very happy. So let's talk about full fiber. Something that must be top of mind for everyone in Openreach. I mean, the rate that you are building is eye watering. I think you built to 700,000 premises with full fiber in the last quarter. You've got this target of 25 million by the end of 2026. So could you give me an update on where you are now with your full fiber build and I suppose level of confidence of getting to that huge target of 25 million?
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Clive Selley2:21
Yeah, sure. It's very exciting. We delivered about 3.1 million new homes passed in the last financial year. We'll beat that number this year, so we're still accelerating the build. I'm pleased to say that we've spent a lot of time negotiating our capex arrangements not just for the year to come but for the next four years. And it's four years that we've got left to get to our 25 million target. As I think you and I have discussed, the aim is to get to 25 million as quickly as possible, but it actually won't stop there because beyond that there are still premises to serve in the UK. I think we'll be building beyond the 25 million at a lower rate per annum, but we're still going to be building, particularly in ultra-rural areas of the UK. I think the ultra-rural build will probably go on to 2030 or even beyond.
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Richard Tang3:30
Yeah, and let's talk a bit about rural then. Because I know that you've always had an ambition and desire and actually delivered results to build to rural areas as well as urban areas. A couple of years ago you committed to build to 3 million rural areas. So be good to hear, of the 20 to 25 million that are built to the target, what proportion is going to be rural? And then beyond the 25 million, beyond the government's target of 85% of the UK having access to gigabit speeds, what's going to be the prospect for those rural customers that are longing for that full fiber connectivity from Openreach's perspective?
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Clive Selley4:20
Yeah, so to date we've built over 10 and a half million premises passed, and over 3 million already are in rural if we use Ofcom's Area 3 definition as a reasonable proxy for rural. So 30% of UK homes are in the Ofcom definition, and we are almost spot on 30% of our build is in rural. And we want to build in proportion, we want to serve the UK in all its geographic areas. So we're building in England, Wales, Scotland, Northern Ireland, building in rural in proportion to urban. That's my ambition for the Openreach build program. In the period beyond 25 million, even more of the homes passed will actually be in rural. We're hoping to participate in the government's gigabit program, and that of course is all about rural delivery. Some of that delivery will be in the out years after we've done the big blast to get to 25 million. You ask specifically how many rural premises in the first 25 million, and the internal program has a plan to get beyond six, so that's where we're going. We're very focused on serving rural just as we serve urban and suburban UK.
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Richard Tang6:01
And I've got in my head that it just costs more to build to rural. So I suppose, you know, why is it that you've got such a focus on rural when if you were just looking at it from a money perspective, you'd focus all your efforts on urban?
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Clive Selley6:18
Yeah, so the economics are interesting as you point out. Certainly costs more to build in rural, there's a price premium for building in rural. But actually in rural, because the copper line lengths tend to be longer, the copper broadband is not as good on average as it is in urban and suburban areas. So what we experience is: cost more to build, it's more labor intensive, there are more engineering challenges, but actually you get quicker take-up when you're building rural. So it's a bit swings and roundabouts, Richard.
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Richard Tang6:55
Let's talk about the alternates. There's about a hundred of them competing with you, of varying scale, some tiny, some bigger. I think the industry consensus is there's not going to be 100 in a few years time, there's going to be some consolidation, winners and losers. But as the biggest fiber builder, with these smaller guys snapping at your coattails, how do you see that industry playing out, the whole altnet market versus Openreach, as the incumbent fiber builder?
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Clive Selley7:32
Okay, so I think the first thing to say is that it is a very competitive marketplace out there building fiber, and I think that's good for the country. To have lots of us building means that we're building more in the aggregate than we would if there were fewer of us building. That's what we see today. My expectation — I don't have a crystal ball, but I do remember what happened to cable in the 90s. There were many cable companies and gradually they consolidated. It wouldn't surprise me if there was some level of consolidation in the fiber build industry. I think that would be natural. But only the alternates themselves can speak authoritatively on that. I think the fact that we have competition and it is very healthy here in the UK is good for the country, good for customers, and good for CPS like Zen.
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Richard Tang8:40
Yeah, when I talk to the alternates, overbuild is a really hot topic for them because it can make the difference between a business model that stacks up and one that doesn't with too much overbuild. But from Openreach's point of view, with such a big target of the UK to build to, how, if at all, is overbuild a factor when you're planning building networks or thinking about commercials?
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Clive Selley9:11
So we don't think much about overbuild, we just don't do that. We have a copper network today, we'd love to transform that to the extent we can afford to into a full fiber network so that the nation has access to great fiber. I think it's healthy if others also build because that creates competitive tension, and through that we all optimize our service and our pricing. So it's much less of a hot topic for Openreach than for pretty much all the altnets.
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Richard Tang9:54
Again comparing Openreach with the alternates, one thing that the alternates have done is offer symmetric speeds. They're using the same gigabit passive optical network technology as Openreach, offering symmetric. Openreach is offering lower upload to download, asymmetric speeds. I guess the question is, why is that? Have you got any plans to change that? Because at the moment the alternates are using that as a selling point over Openreach.
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Clive Selley10:28
So there's nothing stopping us per se in launching symmetric services right now. We have very healthy order inflow for the asymmetric services that we're selling, so it doesn't feel to me right now like an imperative to launch symmetric services. In fact, our latest products are simply higher speed asymmetric services. As you know, we've launched a 1.2 gig and 1.8 gig service, and we'll see how that goes before considering anything else.
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Richard Tang11:04
Okay, okay, yeah. I mean, the 1.2 and the 1.8, looking forward to those. So in terms of the extent of availability of those, what's that at the moment?
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Clive Selley11:04
The 1.2 and 1.8? Well, they're in trial right now, they're about to be available nationally.
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Richard Tang11:17
Okay, fantastic, good. So the challenge for the customers is finding something to do with all that huge amount of bandwidth. Yes, and you know, I think history teaches us that applications perhaps we can't even predict will come along and will be more bandwidth intensive. That's what history teaches us over the last 20 years. Yeah, for sure, for sure. Now, there's been in the news recently an announcement about job cuts at BT wide. I think the BT statement said between 40 and 55,000 jobs, including contractors, potentially on the chopping block. Some of those are going to be within Openreach, there's reference to the end of the fiber build program. So from an Openreach perspective, what's your view on what will happen to jobs? How many of those will be in Openreach? When will they happen? Why will it happen?
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Clive Selley12:18
So I think the first thing to say is that we are even more busy now than we were last year, and we're going to be even busier next year than this year, building at an ever faster rate on the fiber platform. And we have every hope that sales will increase as build increases, so we're going to have a lot of provisioning work ahead of us. It's not like we're running out of work, Richard. We've got a lot to do. But what is absolutely true is that some years from now, when most of our customers are on a fiber network not a copper network, then there will be fewer faults to deal with by our engineering force, and we will need fewer people to handle those faults. And the build program itself will be hugely busy for the next four or five years but then will ramp down. So those two things are true. In the out years, 2030, we will require fewer people. Quite how many fewer is yet to be established. I'm not scared by the issue. We will reduce the scale of our organization mostly through natural attrition and through releasing contract labor. So this isn't, I don't envisage some painful redundancy program at scale. I don't think that is where we're heading.
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Richard Tang14:11
Yeah, certainly the comment that was published from the CWU seems like they're accepting of the situation and just asking that you start with the contracts as before, the permanent people. And that sounds like what you're gonna do. Yeah, yeah. Okay, now you're a technologist, I'm a technologist. You must have some interest in AI. A lot of talking about AI in the press. And actually we're really interested in it at Zen to see what it can do. I guess if you look into the future, what are your views, Clive, on the impacts of AI on Openreach, but not just on Openreach, on businesses and society in general?
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Clive Selley14:43
Yeah, I think AI is both super exciting and perhaps a little bit super scary as well. The idea that we can be outthought by machines or by software programs, you need to get your head around that. I think what we don't understand is the limitations of AI, and we don't understand the ethics of letting computer programs make deep decisioning without human intervention. So I think this tech is in the early stages. It's all very exciting, and you can get it to write your school exam paper for you. We've also seen that as usual, the kids are leading the way. Like my daughter. And we have a lot to explore in terms of how we use it in the workplace. One of my first thoughts is that mostly what we do in Openreach is physical engineering. If you watch us build a network, we've got people climbing poles and putting connectorized block terminals up there or pulling cables through ducts. That work is work for humans that will not be done by AI. But maybe choosing routes or scheduling work, maybe AI will optimize all of that and make us a lot more efficient. And I look forward to that. But much of our work is physical work, so I think Openreach will be impacted a little less than some other industries and companies.
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Richard Tang18:01
Yeah, and I think even when we've looked at it at Zen for non-physical work, we've found that this is technology that helps people do the more repetitive and mundane parts of their job but it's not replacing people. It has limitations, the industry calls it hallucination, which is a euphemism for it just lies. So I think it's a helpful technology but we're a way off. One of the things that scares me is it's only as good as the information it can access. The global internet is full of great information but also a load of rubbish. I worry about how an AI engine can discern good info from nonsense. That matters hugely. Yeah, well, there have been a few examples of AI chatbots having to be turned off very quickly when they become racist. So we'll wait and see. But it's really interesting. Let's switch to the PSTN switch-off. Again, something that is a massive project for Openreach, actually it's a big project for Zen as well because we need to get all our customers off the old PSTN network onto the new technologies, ideally full fiber. So where is Openreach up to with the PSTN switch-off? What's left to do? What are the big challenges? There's a date of 2025 to switch it off. So talk to me about the challenge of doing that and when it's all going to happen.
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Clive Selley18:39
Yeah, well, the first thing to say is it's an industry-wide challenge. It's an Openreach thing because we sell WLR, which is the access product that gets retail CPS like Zen access to the PSTN switches. So we will put WLR on stop-sell from September this year. It's huge for CPS because you've got to move your voice base of customers from old-style PSTN to VoIP. The number of customers consuming old-style telephony is big, it's 10 million plus, a lot of customers and households. It's made even more complex by the fact that the PSTN service is used for things it wasn't intended for in its original design. For example, care alarms that vulnerable or elderly people have operate over the PSTN. So we've got to make sure that not just the raw voice service is replaced but that all these other services built on PSTN continue to work or are replaced. This is really complicated. Then there's another complication: the PSTN offers a trickle charger, direct current trickle charge, which is useful in some applications. Sensors on sluice gates often use the trickle current as a power source. We don't want all the dams flooding as a result of withdrawing PSTN. So there are these small niche cases where the PSTN current itself is being used. While they are niche, they're critical national infrastructure. All of that has to be solved. The PSTN switch-off is scheduled for end of 2025, barely two and a half years away. It has to be turned off because the electronics are aging very fast. This platform was put in in the early 80s, and we're now in the mid-2020s, so it's served more than a useful life. It's coming to end of life, there isn't a choice because this stuff is going to degrade rapidly. It's just an end of life problem and we have to move off it.
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Richard Tang21:55
Definitely. Well, we've got lots of activity to get our customers across, and I'm sure we'll do it in time, I hope we will anyway. I know that you've got a big interest and focus on sustainability, and related to this PSTN switch-off, I understand there's a big environmental gain in terms of carbon footprint in switching off the PSTN. Yeah, yeah. So original, it's really very significant. Largely because the PSTN is based on very early electronics, discrete electronics rather than integrated circuits, so it consumes a lot of electricity. And there's a huge carbon footprint benefit from turning off the platform. That's good news for the planet. And at Openreach, we have a big responsibility for reducing our carbon footprint. We are today part of the problem. For example, we have 28,000 vans on the roads of the UK, most of which are diesel, generating carbon emissions. We're on a journey to replace the fleet with electric vehicles. By the end of this financial year, we'll be just shy of 5,000 electric vehicles. In deploying that fleet, we're exploring obstacles. Where an employee has a garage or driveway, we install a home charging appliance. Where employees live in big cities, they often don't, and we can only use public charging infrastructure, which is underdeveloped in the UK. We're learning where there are deficiencies. Then we have a big accountability on sustainability because we use stuff: millions of miles of fiber cable, plastic-coated componentry, blue rope. In each area we're trying to make a difference. For blue rope, we buy with less plastic and have a proactive recycling program, reusing it so we use less in aggregate. We've moved from plastic cable drums to stiff cardboard drums that can be recycled. So we are a company with a high carbon footprint, and our job is to reduce the amount of stuff we use and make it recyclable or reusable. We're making steps but have a long way to go.
Just on the sustainable, I mean the EV charging thing is interesting because I've got an EV myself since 2019, and sometimes it's a nightmare. I was up in Newcastle at 11 o'clock at night, visited about five different charging points, and I was like 'give me a diesel'. So I suppose the charging infrastructure is not there. Do you have a view that there's a chicken and egg situation? Does the government need to do more, or can this be left to private investment to build that infrastructure?
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Clive Selley26:54
I think particularly in cities where people haven't got a garage to install their own charging point, it's going to take everybody to contribute to solving this problem. So we do need government intervention at national and local level. Ultimately councils allow us to install public charging points. So both national and local government and big companies. We are putting chargers into our yards of big telephone exchanges, and we're exploring whether it's practical to create public charging points adjacent to VDSL cabinets because they have an electricity feed. It's not a daft idea in principle because we have 90,000 cabinets, and that would be a lot of charging points if practical.
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Richard Tang28:13
Yeah, and I guess your engineers that work on the cabinets can charge their car while they're working. Fantastic. Okay, last question. As CEO of Openreach, what's your biggest challenge in 2023?
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Clive Selley28:30
I love it. I'll give you a list of 500. So the overriding challenge for us, given that we're doing so much engineering work building the network and migrating customers, is actually safety. I'm very concerned that what we do up poles and down holes in the streets is done safely, not just for Openreach employees but for our contract employers and members of the public. If we get this wrong, people could get hurt, and I don't want that. And my second challenge is the one we've talked about throughout: we've got to keep accelerating the fiber build program and the migration program, taking customers from copper to fiber networks. So I'll offer you just two.
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Richard Tang29:20
Okay, fantastic, Clive. Thank you so much for spending the time. And thank you very much for watching.
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Clive Selley29:25
Thank you.