The multi-dwelling unit opportunity for FTTH
Over one-third of Americans reside in multidwelling units (MDUs) such as apartments and condos. A notable share of these primarily tenanted households is limited to a single, often slower and costlier, internet service provider. Traditionally, fiber-to-the-home (FTTH) has seen considerable roadblocks in achieving MDU penetration – mainly due to challenges covering legacy MDUs. FTTH is projected to become a major competitor to cable in future MDU developments. This is notable as MDUs with 5+ units are a substantial part of the US housing market’s new builds, receiving over 560,000 permits (38% of the total market) in 2023. FTTH, then, has the opportunity to expand its footprint and market share rapidly.
MDU’s distinct stakeholder structure, with a building owner as the intermediary, distinguishes it from the typical «homeowner-operator» dynamic usually seen with US broadband. The owner of an MDU building acts as a gatekeeper for new ISPs, benefitting from revenue-sharing and exclusivity agreements with a single ISP. The financial gains from these agreements often outweigh the rent premium chargeable for faster internet. The skewed stakeholder incentives and time-consuming and costly retrofits make this an even bigger roadblock for older MDUs. In contrast, when initiating installations in preconstruction MDUs, ISPs benefit from some of the lowest costs per home passed and secure a first-mover advantage – ideal for FTTH penetration.
Evolving regulatory landscape: A double-edged sword
The FCC has imposed a retroactive prohibition on MDU owners and ISPs signing access and wiring exclusivity contracts. This aims to boost competition and provide residents with faster and cheaper broadband options. Therefore, FTTH providers are motivated to upgrade MDUs that have legacy broadband and capitalize on dissatisfied residents. It is also expected to motivate legacy MDU providers, who have enjoyed monopolistic complacency, to upgrade their infrastructure.
Bulk billing mitigates the claim that this regulation deters operators from investing in new MDU projects. Operators can continue to sign long-term bulk billing contracts with building owners to guarantee ROI and simultaneously allow additional ISPs to offer services to residents. The capex advantages available to pre-construction ISPs place them in a strong position. These benefits extend to other PUDs too – reinforcing FTTH’s dominance in the new construction market.
Fibre-to-the-home, on the back of enabling regulation and multifamily housing growth, is poised to dominate the MDU connectivity market in the United States.
Fide Partners is the ideal partner for funds and operators seeking to leverage the FTTH opportunity.
