DNS Abuse Forum - May 25

Home / Blogs

Investing in Rural Broadband

There was a headline in a recent FierceTelecom article that I thought I'd never see — Jeffries analyst says the rural broadband market is ripe for investment. In the article, analyst George Notter is quoted talking about how hot rural broadband is as an investment. He cites the large companies that have been making noise about investing in rural broadband.

Of course, that investment relies on getting significant rural grants. We've seen the likes of Charter, Frontier, CenturyLink, Windstream, and others win grants in the recent RDOF reverse auction. I have municipal clients who are having serious discussions with other large incumbents about partnering — when these incumbents wouldn't return a call a year ago. It's amazing how billions of dollars of federal grants can quickly change the market. Practically every large carrier in the country is looking at the upcoming broadband grants as a one-time opportunity to build broadband networks cheaply.

This is a seismic change for the industry. Dozens of subdivisions with lousy broadband have contacted me over the years, wondering how to get the interest of the nearby cable incumbent. We've just gone through a decade when there has been little expansion by the cable companies in terms of footprint. In many cases, the reluctance for a cable company to build only a few miles of fiber to reach a community of several hundred homes has been puzzling — these subdivisions often look like a good business opportunity to me. The first carrier to build broadband in such areas is likely to get 70% to 90% of the households as customers almost immediately.

The analyst mentioned the newly found interest in rural broadband from the cellular carriers. It's been a mystery for me over the last decade why AT&T, Verizon, and others didn't take advantage of rural cellular towers to get new broadband customers. There are many places in rural America where cellular broadband has been superior to rural DSL and satellite broadband. It's odd to finally see these carriers want to build now, at a time when people are hoping for technologies that are faster than cellular broadband. The cellular carriers instead have poisoned the rural market by selling cellular hotspot plans with tiny data caps. I heard numerous stories during the pandemic of families spending $500 to $1,000 per month on a hotspot — with the alternative being throttled to dial-up speeds after hitting the small data caps. These customers are never going back to the cellular carriers if they get a different option.

Some of the sudden expansion of the big companies mystifies me. For example, Charter won $1.2 billion in the RDOF to expand into rural areas. The company is matching this with $3.8 billion of its own money. That means Charter is building rural broadband with a 24% federal grant. I've studied some of these same grant areas, and I couldn't see a way to build these rural communities without grants of at least 50% of the cost of construction. The RDOF might make sense when Charter is building to areas that are directly adjacent to an existing market. But Charter took grants in counties where it doesn't have an existing customer. This makes me wonder how much the company is going to eventually like what it has bitten off. I'm betting we won't see articles talking about rural investment opportunities after a few big ISPs bungle the expansion into rural areas.

When talking about how rural properties are good investments due to grant money, I always wonder if the companies thinking about this are considering the extra operational costs in rural areas. Truck rolls are a lot longer than in an urban market. There are a lot of miles of cable plant that are subject to being cut. Before the pandemic, 16% of states and 35% of counties had a sustained population decrease. Even with grant funding, many rural communities are sparsely populated and often suffer from low household incomes. Even with grant funding, it's hard to see an ISP doing much better than break even in many rural communities — something cooperatives and municipalities are willing to undertake but which is poison for publicly traded corporations.

Unfortunately, I think I know at least some of the reasons why some companies are attracted to the grants. The big telcos have been cutting the workforce and curtailing maintenance costs and efforts for decades. It's a lot easier to make money with a grant-funded rural market if a carrier already plans to scrimp on needed maintenance expenditures. To me, that's the subtle message not mentioned in the Jeffries' analyst opinion — too many big carriers know how to milk grant money to gain a financial advantage. Unfortunately, those kinds of investors are going to do more long-term harm than good in rural America.

By Doug Dawson, President at CCG Consulting – Dawson has worked in the telecom industry since 1978 and has both a consulting and operational background. He and CCG specialize in helping clients launch new broadband markets, develop new products, and finance new ventures. Visit Page

CircleID Newsletter The Weekly Wrap

More and more professionals are choosing to publish critical posts on CircleID from all corners of the Internet industry. If you find it hard to keep up daily, consider subscribing to our weekly digest. We will provide you a convenient summary report once a week sent directly to your inbox. It's a quick and easy read.

I make a point of reading CircleID. There is no getting around the utility of knowing what thoughtful people are thinking and saying about our industry.

VINTON CERF
Co-designer of the TCP/IP Protocols & the Architecture of the Internet

Comments

 Be the first to post a comment!

Add Your Comments

 To post your comments, please login or create an account.

Related

Topics

Domain Names

Sponsored byVerisign

Brand Protection

Sponsored byAppdetex

Threat Intelligence

Sponsored byWhoisXML API

Cybersecurity

Sponsored byVerisign

Domain Management

Sponsored byMarkMonitor

IPv4 Markets

Sponsored byIPXO

DNS Abuse Forum - May 25