AT&T reported recently at an investor conference that supply chain issues will likely mean that the company will only achieve 2.5 million of the 3 million planned new passings for the year. AT&T didn’t name the vendor that was the primary reason for the slowdown, but it’s likely that it’s either Corning or CommScope.
This news has to be sounding loud alarms in boardrooms everywhere in the industry because if AT&T has supply chain issues, then everybody else is likely to have worse ones. It’s hard to imagine that every manufacturer in the industry isn’t giving AT&T the highest priority in its queue. If AT&T can’t buy everything they want, then how will smaller telcos meet fiber expansion goals? How will new fiber overbuilders like cities using ARPA funds be able to break into an overloaded supply chain?
Supply chain issues are arising for a variety of reasons, all of which might come together to create a perfect storm for the industry. One reason for shortages is manufacturing capacity. For example, Corning saw revenues jump by 21% in the recently ended second quarter compared to a year earlier. Factories that are already working at or near capacity and can’t flip a switch to produce 20% more product. Demand is going to grow a lot more. The consulting firm RVA LLC recently predicted that the industry has plans to build fiber past 61 million homes between this year and 2025 – that’s far more fiber than has ever been built.
Supply chain issues are also still suffering from the lack of the raw ingredients needed to manufacture key components. This is one of the key issues behind the chip shortage and the shortage of electronics cases that are made from resin. Much of the global supply chain has not recovered from the impacts of the pandemic – and as the delta variant sweeps the world, this issue is far from behind us.
There are also more mundane supply chain issues. There is still a shortage of truck drivers and port capacity to deliver the glut of materials and products hitting the market as the economy is rapidly improving. Apparently, during the break from the pandemic, many truckers decided they were tired of life on the road and are pursuing something else. The industry is having a hard time training new truckers at the needed pace, and truck driving schools are working overtime.
There are also more subtle changes behind the scenes. For example, many manufacturers have quietly looked for sources other than China during the pandemic. Many companies have come to realize that their own success was tied too closely to supply chains that were wholly within specific regions of China. Switching supply sources to other countries is not something that happens overnight, and many of these new relationships are still growing and maturing.
Some of these issues will get solved over time. But the bigger issue of unprecedented demand is likely going to plague us for much of the next decade. AT&T is not going to give up on the half-million homes it won’t reach this year and will just shove that into next year.