It's no secret that the demand for internet is up.
The pandemic has illustrated that reliable, high-speed internet is considered a utility for many American families. And as more people look to get connected, more internet service providers are accelerating plans that enable them to do so.
The cable industry has dominated broadband market share, but Wall Street equity analyst Jonathan Chaplin at New Street Research has recently issued a new report “More Fiber Is Coming”. In this report, Jonathan’s analysis illustrates that the roll out of fiber networks will chip away at this monopoly.
Chaplin, said his firm has begun tracking fiber deployment economics and the potential returns fiber deployers can get from those new networks. This preliminary investigation shows fiber is poised to pass 60 million homes in the next decade. While that’s good news for network providers, he also said fiber is topping out at about 50 percent of the market share, with cable claiming the other half.
This is partially due to accessibility for fiber-to-the-home (FTTH) in many markets, and also consumer familiarity with traditional cable.
“That’s what you would expect in a duopoly market where products are roughly equivalent,” Chaplin said. “The difference from a product perspective between upgraded coax and fiber is insignificant from a consumer perspective at this stage.”
But that’s not necessarily bad news for fiber. Research also shows large investments to existing fiber networks are on the rise. On major providers like Verizon and AT&T, fiber subscribers have more than doubled in the past decade. Smaller telecom providers are also reporting their non-FTTH customer base is declining. New Street Research estimates since 2015, non-FTTH subscriber penetration has declined by nearly 5 percent.
In the next decade, Chaplin said his firm believes there will be an additional 20 to 30 million homes passed with fiber and large network providers will be responsible for a significant portion of that. As more networks are built, the total IRR by passing threshold decreases, as does the EBITDA per passing. By comparison, the build capex per passing goes up as more homes are passed.
“We think the returns [fiber ROI] are great,” Chaplin said. “It will not only generate an attractive return, it’s also massively better than the alternative—which is doing nothing.”
The only potential obstacle will be getting these plans deployed in a timely manner. As more people rely on internet each day, Chaplin predicts people will become more discerning about the quality of their internet and less concerned about the cost—and the data reflects that shift.
“[The increase in fiber] being driven by households that need faster broadband,” he said, “With so many families working and learning from home, the utility of home broadband has risen sharply. It’s become an absolutely essential utility—on par with electricity—for most households.”