While there was a huge amount of fiber built in the U.S. in 2023, the largest ISPs almost universally cut back their plans during the year. Going into 2023, the big telcos had publicly announced plans to build 9.4 million fiber passings, but during the year, they collectively pared that back expectations to 6.5 million passings. We’ll have to wait for the end of year numbers to see if the big ISPs even met the lowered expectation.

There are a lot of reasons for the fiber construction slowdown. The high cost of borrowing put a crimp in a lot of ISP plans. It’s a lot harder to justify funding fiber construction with interest rates that were twice the rates from a year earlier. High interest rates also put a big crimp in new home startups for the year, which are part of any plans for fiber expansion. Inflation played a role in the slowdown – it cost at least 20% more to build a fiber network by the end of 2023 than just a few years earlier, meaning construction budgets didn’t cover as many homes as in the past. Some companies like Lumen had other reasons to pare back plans due to poor overall company performance.

One of the reasons I’ve seen cited for the fiber slowdown is that analysts are souring on the returns that can be made from fiber construction. It’s been obvious over the last two years that a lot of fiber construction and expansion has been fueled by investor equity being suddenly infused into the broadband market – something that was not a factor just a few years earlier. I’ve been scratching my head over the phenomenon. Building fiber networks doesn’t bring the kind of high returns that many equity investors are hoping for. We can go all the way back to Verizon’s foray into FiOS to see that fiber networks make nice, steady infrastructure-type returns and eventually spin off a lot of cash. There are investors seeking that kind of steady return, but the sudden influx of venture capital hints that there are some investors hoping for something better.

The Fiber Broadband Association estimated that even with the slowdowns there were roughly 9 million fiber passings built in 2023, which is the most ever. A lot of that construction is coming from the many smaller overbuilders that are going gangbusters. From my personal experience with clients, a lot of this construction came from State broadband grants and from ISPs who are self-funding fiber in smaller cities. It’s hard to know the degree that smaller ISPs also slowed down plans, but many of them that I know significantly curtailed expansion plans due to higher debt costs.

What are the consequences of a fiber construction slowdown? The biggest immediate impact is for fiber vendors, and seeing sales dip of millions of expected passings has to be extremely disappointing for the industry. A lot of vendors also built up capacity for the coming $42 billion BEAD grants, and it looks like there won’t be much construction from those grants until 2025.

Another immediate impact of building millions of passings was on fiber contractors. A drop of over 3 million passings translates into a huge number of construction crews that didn’t get hired during the year. That goes a long way toward explaining why the forecasted shortage of technicians didn’t materialize as expected. I can’t think of any construction projects that got put on hold due to lack of crews. This doesn’t mean that there won’t be crew shortages when it’s time to build BEAD grants. But a crew shortage didn’t materialize as feared in 2023.

Perhaps the biggest consequence is that 3 million fewer homes were passed by fiber. If we believe the statistics cited by the big fiber overbuilders, then this means that 1 million fewer customers purchased fiber during the year. The big telcos almost universally claim they quickly get a 30% market penetration after building fiber and the penetration rate climbs from there over following years. We know that competition brings lower prices and better service for everybody, including people who stick with the cable company after fiber comes through a neighborhood – so three million fewer fiber passings means a lot less competition.

The big question, which nobody can likely answer, is if this slowdown is temporary and if the big ISPs will eventually still reach their overall target number of fiber households. Or will the 2023 slowdown mean fewer homes will ever get fiber – at least from the giant ISPs? My crystal ball is not good enough to answer that question.