- Fiber consolidation is still a few years away as investors focus on maximizing returns on their assets
- BEAD uncertainty complicates ISP valuations and M&A strategy
- That uncertainty is also hurting construction cos and subcontractors
Consolidation is the talk of the town in the telecom industry, with new deals popping up every other week. But we’re not at the point where companies are selling off en masse – yet.
Bora Goekbora, TMT partner at Boston Consulting Group, said investors for now are still trying to get their money’s worth out of the companies they want to sell. So, it’ll likely be a few years before fiber consolidation really ramps up.
“What we’re generally seeing in infrastructure investing right now is there’s a few different mechanisms coming into play to extend hold cycles, allowing investors to squeeze more performance out of assets and defer sale of them,” he said on a ConnectX panel Wednesday.
Consolidation also hinges on how the competitive landscape evolves. Wireline ISPs in general have “underestimated” the impact of fixed wireless access, Goekbora added, which will likely “weigh on penetration a bit.”
He doesn’t expect low earth orbit (LEO) satellite to have the same effect. “It’s primarily a rural application and what the data shows is that it’s taking share primarily from the GEO [geostationary] providers,” Goekbora said.
However, Goekbora cautioned, "You cannot ignore how quickly things are changing.”
BEAD delays cloud M&A prospects
This is particularly relevant for the $42.5 billion Broadband Equity, Access and Deployment (BEAD) program, which has slowed down amid the new administration.
Once BEAD actually gets going, could operators swoop in and acquire the ISPs that have received a considerable amount of funding? We’ll have to wait and see, said Goekbora. “Receiving funding doesn’t necessarily make your build more attractive.”
In any case, “hopefully there is a positive reason that the consolidation is happening,” said Marissa Mitrovich, VP of public policy at the Fiber Broadband Association, and these providers “are not forced into these situations.”
She added FBA’s members are involved in various contracts with different kinds of funding in play, so that’s something else to consider as fiber providers consider consolidation.
“Different states have different rate laws,” she said. “We don’t know what [providers] committed to after their builds.”
BEAD uncertainty
Concerning BEAD and the uncertainty of how much funding will go to fiber projects compared to satellite and wireless deployments, Mitrovich said FBA is still “cautiously optimistic that fiber will largely be in the mix.”
“We would love predictability but that’s not where we’re at with the program,” she said, noting she’s most concerned about delays as the Commerce Department’s BEAD review remains in limbo.
Delays are also hurting business for construction companies and subcontractors, according to Paul Weintraub, VP of fiber deployment at Watch Hill Wireless.
“If the project keeps on getting delayed, then it impacts our hiring and the ability to have the right staff,” he said. Even pushing back the start date by a month or two is problematic because subcontractors may no longer be available, which ends up costing companies like Watch Hill more money and time.
“[Subcontractors] get punted once, they’re fine. They get punted a second time, they start getting a little upset with you,” said Weintraub. “The third time? They don’t want to pick up the phone anymore.”
Read more from ConnectX here.