AT&T recently announced a joint venture with Global Infrastructure Partners (“GIP”), a part of BlackRock, and the Canada Pension Plan Investment Board to build new fiber passings. AT&T will own 50% of the joint venture, with the equity investors owning the other 50%. It gets a little convoluted, but one of the assets that AT&T is bringing to the table is the fiber assets it recently purchased from Lumen. Those assets were placed into a new company, Forged Fiber 37, which will be rolled into the new joint venture with GIP. AT&T also currently operates the Gigapower joint venture with GIP.

The new joint venture brings big advantages to AT&T. The new capital partners can bring the money needed to grow the businesses. AT&T will be using the joint venture to expand fiber outside its traditional footprint. AT&T says it expects the two joint ventures to grow to 10 million passings by the end of 2030, meaning the new joint venture and Gigapower will need to be collectively adding 1.5 million new fiber passings per year. This is good news for the cities where Lumen slowed down and didn’t complete fiber expansion. With these new ventures, AT&T is now targeting 50 million fiber passings by the end of 2030.

AT&T isn’t the only big fiber company forming joint ventures. Over the last year, we’ve seen T-Mobile enter into four different fiber joint ventures as part of the company’s plan to  have 12-15 million fiber passings by 2030.

• It created a joint venture with the investment firm EQT to buy and expand Lumos.
• It entered into a joint venture with KKR to purchase and expand Metronet.
• It formed a joint venture with Oak Hill Capital to buy and expand GoNetspeed and Greenlight Networks.
• It formed a joint venture with Wren House to acquire and expand i3 Broadband.

Joint ventures are obviously a huge new trend. A decade from now, will we find that most of the retail fiber customers are owned by joint ventures?

There are a lot of advantages to creating joint ventures for fiber expansion. Building new fiber is capital intensive, and it’s a good place for investment firms interested in steady returns to park their capital. In the case of T-Mobile, its complicated ownership structure with Deutsche Telekom makes it impossible for the company to directly buy ISPs.

The investment firms are parking money with a trusted ISP partner that they believe can efficiently put the money to use. By this time, AT&T has the fiber expansion process down to an art form. Joining forces with AT&T or T-Mobile is a lot safer for an investor than directly buying an ISP, since an investor doesn’t know how to operate and navigate an ISP in the ever-increasingly competitive marketplace.

I’ve always wondered why investors weren’t interested in buying ISPs. One obvious reason is that the ISP business is capital-intensive and returns are not spectacular. But as every ISP knows, a mature ISP business spins off a lot of reliable cash. I’ve always believed that capital investors have been too heavily enamored by the possibility of investing in a tech unicorn company to earn immense returns. But investing in possible unicorns that don’t make it means throwing away investment capital. I’ve always thought there should be more appeal in buying businesses that spin off utility-level returns but create a lot of cash forever.

There is one other possibility with this trend of joint ventures. This might be an early step in the evolution of broadband companies if the ultimate goal is to eventually roll up joint ventures into a gigantic ISP that has coast-to-coast market power. We’re going to have to wait a decade to see the intentions of AT&T, T-Mobile, and these various capital investors.