Openreach can now grow without you: renegotiate value, not volume

On 23 July BT Group published its trading update for the three months to 30 June, and the figure that matters to the channel was not the one it led with. Openreach broadband lines fell by 192,000 in the quarter. Openreach broadband average revenue per user (ARPU) rose 7% to £17.7, which the release attributes to higher take-up of fiber to the premises (FTTP), speed mix and price increases.

Read those two sentences together and you have the UK wholesale broadband market in miniature. Openreach sold fewer lines and charged more for each one, and BT is relaxed about it: the release says it still expects to lose around 800,000 lines over the full year. That is the tone of a company that has stopped counting lines and started counting what each line pays.

The segment table in the regulatory news service (RNS) announcement makes the point in money. Openreach adjusted revenue was £1,575m, up 1%, and its adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were £1,093m, up 2%. BT’s Consumer unit, its own retail arm, saw adjusted EBITDA fall 3% to £616m. Business fell 7% to £302m.

So here is my argument. Wholesale revenue per broadband line is rising. Retail revenue per customer is not. Every internet service provider (ISP), reseller and MSP that buys Openreach access and sells it under its own brand sits between those two lines, and that gap is where the difference lands. The channel’s response has to be to renegotiate value, not volume, because Openreach has found a way to grow without adding lines – which is to say, without you.

The lines left but the money stayed

Openreach’s full fiber footprint reached 23.4 million premises, up 514,000 in the quarter, and BT says it is on track for 25 million by December 2026. FTTP net adds were a record 574,000, taking premises connected to 9.4 million and take-up to 40%. Every copper line that migrates to fiber moves up the price list; every customer who moves up a speed tier moves it again. Allison Kirkby, chief executive of BT Group, said fiber now contributes “more than half of our broadband revenues for the first time”.

The release does not say where the 192,000 lines went. Openreach’s model no longer depends on holding every line in the country, only on the mix of the lines it keeps. The cost of serving them is falling: BT’s workforce measure, “total labour resource excluding International” in its own phrase, fell 8% to 94,000, and Openreach repair volumes fell 21%. A fiber network with fewer faults, fewer engineers and a rising price per line is a machine that can shrink in units and grow in profit. Kirkby said that “No-one is upgrading and investing in the country’s digital backbone at the scale and pace that BT is.” She is right, and it is also the sound of a landlord explaining why the rent is going up.

Retail prices are not following

You do not need an alternative network (altnet) price list to see the squeeze. BT’s own retail arm shows it. Consumer broadband ARPU was £40.9 in the quarter, down 2% year on year, which BT puts down mainly to declining voice revenue. Consumer added 1,000 broadband customers and held churn at 1.1%. In one group, in one quarter, revenue per line at the wholesale layer rose 7% while revenue per customer at the retail layer fell 2%.

If BT’s own brands cannot lift retail prices to match what Openreach is charging, a regional reseller with a few thousand lines is not going to manage it either. And the voice revenue that used to pad the broadband margin is going: Kirkby described this as the final year of the public switched telephone network (PSTN). The cushion between the wholesale bill and the retail price is being removed from both sides at once.

Volume was never the channel’s lever

The channel has always negotiated wholesale broadband on volume: line-count tiers, growth rebates, the promise of the next thousand connections. That lever is worth less every quarter. When the owner of the network expects its own line base to shrink by around 800,000 in a year, a promise to grow your line count is a promise the market will not let you keep. The release describes Openreach as wholesaling to more than 700 communications providers. Against 23.4 million premises passed and 9.4 million connected, one reseller’s volume is a rounding error, and rounding errors do not get better prices.

What Openreach does value is written in its own explanation of the ARPU rise: “driven by higher FTTP take-up, speed mix and price increases”. Migrating a base from copper to fiber, selling the higher tier, keeping churn low: that is the demand Openreach wants and cannot generate on its own. It is the only thing you have that it needs.

The bargaining chip is demand quality

So price on it. Go into the next wholesale negotiation – with Openreach directly or with the wholesaler in between – carrying three numbers: your copper-to-fiber migration rate, your speed mix and your churn. Those are the drivers BT itself named on 23 July. Refuse volume commitments in a market its own owner expects to shrink. Ask for the price per line to reflect the quality of the lines.

Then move the margin. Every pound of profit that sits inside the Openreach line is a pound Openreach can reprice. The profit that is safe sits in the layer it cannot wholesale: the managed service, the security, the voice replacement for a PSTN in its final year, and the relationship with a customer who neither knows nor cares whose fiber runs into the wall.

Openreach has worked out how to grow without adding a single line. The channel leader who has not worked out how to grow without adding a single Openreach line is negotiating with a supplier that no longer needs them.