This paper dives deep into the US broadband market, analyzing the current landscape dominated by cable networks and the challenges that serve as a roadblock for fiberization. Drawing from successful global precedents and tackling the specific barriers within the US, we highlight the potential for a successful wholesale fiber infrastructure deployment in the US.
The US has a long way to fiberization – as cable continues to dominate
The US broadband market is complex and varied due to its large geography and demographic spread. It stands as an outlier amongst its peers with its low correlation between the level of fiberization and average wired broadband speed. Although only 20% of fixed broadband subscribers are connected to fiber, 77%+ wired broadband subscribers enjoy 100 Mbps+ download speeds. Even with fiberization levels below the OECD average, the US substantially surpasses the OECD’s average speeds for subscribers.
Cable technology predominates within the U.S., with speeds up to 250/25Mbps (download/upload) accessible to more than 81% of American homes. This, however, also suggests that merely 20% of households are reaping the advantages of the symmetrical upload speeds provided by fiber.
Leveraging advancements like the faster DOCSIS 4.0, cable-centric companies such as Comcast and Charter are intensifying their efforts to enhance and extend their cable networks to rival the performance of fiber. These enhancements come with lower capex implications compared to overbuilding fiber. The financial considerations, coupled with limited consumer awareness and opposition to allowing physical modifications to their properties, have been significant barriers to the widespread adoption of fiber in the US.
Take-up is the biggest challenge for fiber in the US, not coverage
Although the pace of fiberization in the US has been somewhat slow, a more significant challenge lies in persuading households to transition to fiber. Even with an increasing proportion of the population having access to this technology, only about 13% opt for fiber broadband subscriptions. This reluctance encompasses not only those hesitant to switch to a new fiber provider but also individuals who choose not to upgrade to fiber when their existing ISP upgrades from legacy systems.
Price remains a significant barrier to the wider adoption of fiber. Cable can be up to 67% less expensive for comparable download speeds, with fiber only becoming economically viable at gigabit and higher speeds. Consumer demand for the symmetrical upload speeds provided by fiber appears limited, even though cable offers upload speeds of just 20 Mbps at prices as high as $60 per month. Given the lack of imminent applications requiring gigabit-plus speeds, the average consumer is not inclined to upgrade to a 2 Gbps service.
Europe’s wholesale fiber playbook offers valuable insights for the US
The convergence of high cable penetration, vast geographic areas with sparse population, and the dominance of vertically integrated incumbents significantly impede fiber expansion in the US. However, lessons from European markets that have surmounted similar challenges offer valuable insights for US infrastructure investors and operators interested in the wholesale fiber sector.
Open Fiber in Italy exemplifies how a well-capitalized, strategically aligned wholesale operator can effectively challenge incumbents. Deutsche Glasfaser in Germany’s crowded market and Vodafone’s collaboration with CityFibre in the UK also provide notable examples of successful wholesale fiber networks in diverse contexts.
Initiating wholesale networks in the US requires significant capital, time, and logistical efforts. Utilizing insights from international successes can guide the development of effective strategies and uncover opportunities for wholesale fiber projects in the US.
Open Fibre’s meteoric rise has played a part in forcing TIM’s NetCo sale decision
The Italian broadband landscape has witnessed two significant milestones within the European broadband sector: the rise of one of the largest and most successful wholesale operators, and the NetCoServiceCo Separation executed by a Tier 1 European telecommunications company.
Open Fiber is a wholesale-only infrastructure operator building out an extensive greenfield FTTH network in Italy. Started as a JV between Enel Group (a utility company) and CDP Equity – the company benefitted from RoW and the infrastructure experience of Enel. It operates with key retail partners such as Vodafone and Wind.
Coverage: 13mn households
Budget: EUR6.2bn/EUR15bn
Buildout: 57,000km/88,000km
Active Customers: 2.3mn
Wholesale fiber in the US – getting the numbers to work
Low competitive intensity areas
A wholesale fiber network will have to buck the trend of low fiber take-up in the US to be economically viable.
Targeting underserved areas with limited competition will be key to achieving higher take-up.
GigaPower, AT&T and BlackRock’s partnership seems to follow this strategy, covering areas such as Phoenix Metro and Las Vegas – cities with some of the lowest median download speeds.
Partnerships are a key to success
A wholesale operator is only as good as the reach of its partner retail service providers.
The nascent and relatively unexplored retail service provider model in the US will require the wholesale operator to evaluate and set up these relationships sooner rather than later.
Locking in a well-known brand looking to enter the RSP space, such as T-Mobile, as an anchor partner sets a wholesale network up for success.
Subsidies make the economics work
The US’ recent federal and state funding programs, such as the USD42.5bn BEAD, incentivize wholesale fiber networks.
With a focus on underserved areas and a preference for fiber technology – programs such as BEAD can be a key part of thwarting the intensive capex and high CPPP synonymous with fiber deployments in the US.
Wholesale operators in countries such as Germany have consistently relied on subsidies to fuel their network expansion.
Strategic partnerships offer a promising avenue for investors
In the strategic landscape of expanding US broadband, investors have two primary avenues within the wholesale network domain: greenfield and brownfield joint ventures, each tailored to different market scenarios.
In greenfield ventures, the ideal strategy involves partnering with an RSP to construct new wholesale networks in underserved areas. This approach, requiring substantial capital, opens doors to untapped markets, with the possibility to deploy FTTH. For investors, collaborating with RSPs mitigates the risks of entering new markets, ensuring stable, long-term returns through early anchor tenant agreements.
For brownfield ventures, we believe a potential investment in a NetCo split of a TelCo is a possible entry for an investor. This strategic acquisition allows for accelerated market access, an existing customer base from the anchor ServiceCo, and a preestablished operations and team. However, the investor will have to deal with the encumbrances that the legacy system brings with it and not enjoy the clean slate deployment offered by a greenfield investment.
Each model presents a strategic avenue for infrastructure investment, underscoring the need for a tailored approach based on specific market opportunities and investor objectives.
The US wholesale fiber space is ripe for investment.
Fide Partners is uniquely positioned to help our clients get in on the ground floor
