A Fiber Land Grab?

I was surprised to see AT&T announce a public-private partnership with Vanderburgh County, Indiana to build fiber to 20,000 rural locations. The public announcement of the partnership says that the County will provide a $9.9 million grant, and AT&T will pick up the remaining $29.7 million investment.

The primary reason this surprised me is that it is a major reversal in direction for AT&T. The company spent the last thirty years working its way out of rural America, capped by an announcement in October 2020 that the company will no longer connect DSL customers. AT&T has publicly complained for years about the high cost of serving rural locations and has steadily cut its costs in rural America by slashing business offices and rural technicians. It’s almost shocking to see the company dive back in as a last-mile ISP in a situation that means long truck rolls and higher operating costs.

I’m sure it was the County grant that made AT&T consider this, but even that is surprising since the County is only contributing 25% of the funding. I’ve created hundreds of rural business plans, and most rural builds need grants of 40% or even much more to make financial sense. I assume that there is something unique about this county that makes that math work. AT&T and other telcos have one major advantage for building fiber that might have come into play – they can overlash fiber onto existing copper wires at a fraction of the cost of any other fiber builder, so perhaps AT&T’s real costs won’t be $29.7 million. Obviously, the math works for AT&T, and another county will be getting a rural fiber solution.

AT&T is not alone in chasing rural funding. We saw Charter make a major rural play in last year’s RDOF reverse auction. The RDOF reverse auction also attracted Frontier and Windstream, and both of these companies have made it clear that pursuing fiber expansion opportunities and pursuing grants are a key part of their future strategic plan.

My instincts are telling me that we are about to see a fiber land grab. The big ISPs other than Verizon had shunned building fiber for decades. When Verizon built its FiOS network, every other big ISP said they thought fiber was a bad strategic mistake by Verizon. But we’ve finally reached the time when the whole country wants fiber.

This AT&T announcement foreshadows that grant funding might be a big component of a big ISP land grab. The big ISPs have never been shy about taking huge federal funding. I wouldn’t be surprised if the big ISPs are collectively planning in board rooms on grabbing a majority of any big federal broadband grant funding program.

I think there is another factor that has awoken the big ISPs, which is also related to a land grab. Consider Charter. If they look out a decade or two into the future, they can see that rural fiber will surround their current footprint if they do nothing. All big ISPs are under tremendous pressure from Wall Street to keep growing. Charter has thrived for the last decade with a simple business plan of taking DSL customers from the telcos. It doesn’t require an Ouiji board to foresee the time in a few years when there won’t be any more DSL customers to capture.

I’m betting that part of Charter’s thinking for getting into the RDOF auction was the need to grab more geographic markets before somebody else does. Federal grant money makes this a lot easier to do, but without geographic expansion, Charter will eventually be landlocked and will eventually stop growing at a rate that will satisfy Wall Street.

Charter must also be worried about the growing momentum to build fiber in cities. I think Charter is grabbing rural markets where it can have a guaranteed monopoly for the coming decades to hedge against losing urban customers to competition from fiber and from wireless ISPs like Starry.

My guess is that the AT&T announcement is just the tip of the iceberg. If Congress releases $42 billion in broadband grants, the big companies are all going to have their hands out to get a big piece of the money. And that is going to transform the rural landscape in a way that I would never have imagined. I would have taken a bet from anybody, even a few years ago, that AT&T would never build rural fiber – and it looks like I was wrong.

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