The move should help drive FTTP adoption in the UK, which until now has been very limited. IHS Screen Digest data shows there were under 0.005m FTTP broadband connections in the UK at YE 2010, taking less than 1% of total broadband connections. But this figure is forecast to grow to 1.1m connections by 2015, to account for nearly 5% of all broadband.

Hyperoptic will be competing with BT Retail in the FTTP segment which is currently rolling out FTTP to pass 0.27m homes by the end of Q3 2011, and around 4.5-5m homes by 2015. BT's FTTP service, which is expected to offer users up to 110Mbit/s, is yet to launch. On the cable side, Virgin Media is a major competitor to Hyperoptic and BT's FTTP-based services. The cableco has upgraded its whole ~12.9m premise footprint to DOCSIS 3.0, and already offers 100Mbit/s to 2m homes as of Q1 2011. As a pricing guide to Hyperoptic's product line, Virgin currently sells 100Mbit/s broadband for £45/month standalone, £35 when taken with fixed voice calls. The cable operator has also recently announced plans to offer even higher speeds, having launched trials of 1.5Gbit/s in London earlier in 2011.

It is unsurprising that the new FTTP operator is going for customers in metropolitan areas and large buildings since the FTTP business model relies on high density of end users which offer the strongest prospect for high return on investment, but also keeping deployment costs to a minimum. While US provider Verizon has rolled out FTTP to a mix of apartment blocks and detached premises, incurring costs of around £350-£450 per individual flat or office passed, by contrast CityNetwork's similar approach to Hyperoptic in Hong Kong, targeting only multi-dwelling buildings, works out considerably cheaper, around £120 per unit passed. Initially, we estimate the cost for Hyperoptic to be somewhere in the £150-£300 range.

Hyperoptic's strategy of building out its own access cabling and network equipment, while meaning high upfront buildout costs, enables the telco to maintain full control of broadband, and any other voice and pay-TV services it may supply over its network. The operator is also likely to benefit from healthier operating margins by not having to pay recurring and one-off wholesale fees to third party network operators such as BT.

That Hyperoptic is planning to take backhaul services from independent providers underlines that competition to BT in the backhaul segment, at least in built-up areas, has gained momentum over recent years. As more providers look to FTTC and FTTP buildouts, which enable growth of online services delivering increasingly bandwidth-intensive content, so competition in the backhaul segment is likely to heat up further, as operators drop prices and new entrants look to build out and upgrade connections to phone exchanges to respond and supply retail ISPs whose demand for wholesale backhaul capacity is likely to continue rising.