Investor-owned providers make FTTP “land grab.”

Just a few years ago, it would have been hard to imagine investor owned legacy telephone and cable companies would consider a major push into fiber to the premise (FTTP) due to their extractive business model constraints averse to major capital expenditures. That tends to favor fiber builds in high end condominiums and select “fiberhoods” as a luxury amenity.

A recent roundup in Broadband Communities paints a picture of regime change in what an economist quoted in the article calls a fiber “land grab” even in historically less densely developed areas where ROI was too far out to justify investment in FTTP. Cable providers are abandoning coaxial cable and migrating to FTTP. Overbuilding incumbents with fiber – also previously unheard of – is occurring. The overall impression from the article is FTTP is busting out everywhere, albeit a generation late relative to the demand for Internet-based services. (Separately, even private equity -- impatient capital hardly a source for long term capital investment - is getting in on the fiber real estate rush, looking for a future profitable flip.)

What’s driving the change? A couple of likely factors. There’s first mover advantage: whichever provider gets fiber to the prem first gets a very sticky customer thanks to the terminating monopoly characteristic of these connections. It’s not as though they have multiple fiber connections and can chose among them. Nor is it economically feasible to provide them. Legacy providers may also be lengthening their investment timescale away from the traditional internal ROI standard in order to gain first mover advantage, knowing they’ll own the customer over the long term and the opportunity to sell services to them.

Second, to foster an impression of progress and momentum after years of minimal investment in FTTP fueling public policy discussion of the nation’s advanced telecommunications infrastructure deficiencies displayed in stark relief during the public health restrictions of the 2020 pandemic outbreak. Investor-owned providers probably know that they don’t appear to be making rapid progress to remedy them, support for public and consumer utility coop owned FTTP and appropriations to help fund them will grow despite plying elected officials with campaign contributions. That could also spark proposals to regulate commercial internet delivered services as common carrier public utilities. That would bring with it requirements to honor customer requests for FTTP connections and state rate regulation that are anathema to investor-owned providers.

Should BEAD green subsidize greenfield FTTH?

Legacy incumbent telephone and cable companies might conceivably seek state subsidies under the federal government’s Broadband Equity, Access and Deployment (BEAD) program is to edge out their footprints to serve new “greenfield” housing developments. These providers prefer new housing developments for multiple reasons. The homebuyer is going to need service and new homebuyers tend to be relatively higher income and generate good ARPU and ROI. Deals can be cut with homebuilders to bring fiber to each homesite. It’s easier to trench fiber in new and unoccupied housing developments as lots and streets are being finished.

From the service provider’s perspective, greenfields are  a better risk to extend fiber to the home (FTTH) than a brownfield development that is already generating revenues, often on non-FTTH delivery infrastructure, thus requiring households to upgrade to fiber or to overbuild an existing provider. In a greenfield development, every household can be connected to FTTH before the new homeowners move in.

Greenfields nominally qualify for BEAD subsidies because there’s not yet an existing provider offering service, thus meeting eligibility threshold of not less than 80 percent of broadband-serviceable addresses being unserved or underserved. BEAD guidance defines a “Broadband-Serviceable Location” as “a business or residential location … at which fixed broadband Internet access service is, or can be installed” (as with a new housing development).

Providers that have historically preferred greenfields as better risks might also be willing to pay higher BEAD match amounts than the minimum 25 percent, possibly 50 percent or more, given BEAD guidance that encourages states to incentivize proposed projects with higher match amounts.

Greenfield projects seeking BEAD subsidization could however raise digital equity concerns by federal and state BEAD administrators. They might conclude the use of subsidies for these lower risk builds does not comport with the legislative intent expressed in the Infrastructure Investment and Jobs Act (IIJA). The statute notes the “persistent ‘‘digital divide… disproportionately affects communities of color, lower-income areas, and rural areas”— populations that typically face affordability challenges to buy in new home developments and may resent adjacent neighborhoods being offered government subsidized FTTH when they are not served by it.

Relative advantages, disadvantages of public and private capital investment in FTTP

As the long running battle between public and private capital continues in the advanced telecommunications space amid what have described as a private capital “gold rush” to capture and own customers, here are the relative advantages and disadvantages of each. 

PUBLIC CAPITAL ADVANTAGES	PUBLIC CAPITAL DISADVANTAGES
Access to lower cost, more patient capital in public bond markets.	Lack of coherent, committed public policy and strategy for getting FTTP to most all doorsteps.
No need to earn profit or pay shareholder dividends.	Goal dilution; focus on ancillary benefits vs. universal FTTP connectivity.
Longer term commitment.	Slower capital allocation due to political decision-making process and tax & fee resistance/exhaustion. Private capital deals can be made within months vs. years.
Accountable to public interest and not just investor shareholders.	Subject to disinformation campaigns by private capital owners exercising First Amendment rights.

 

PRIVATE CAPITAL ADVANTAGES	PRIVATE CAPITAL DISADVANTAGES
Current dominance as legacy (telephone and cable company) providers. First mover advantage in natural (utility) monopoly that can slow end user acceptance of public owned open access FTTP.	Business model constraints that limit capex for deployment, misalignment between capex and ROI needs.
Unregulated “wild west” spawns “gold rush” for cherry picked FTTP archipelagos offering relative rapid ROI; no universal service mandate, rate regulation.	Negative public perception due to deployment of FTTP only in select neighborhoods and not most; poor customer support.
Established control of public narrative based on “broadband” as market commodity vs. FTTP as utility infrastructure.	High debt and shareholder dividend obligations.
Public policy path dependency recognizing private sector dominance of policymaking process.
Relatively rapid access to private capital markets, private equity.