How Wholesale Fiber Networks May Create New Broadband Providers
Episode ID S2E07
May 10, 2023
Thanks to wholesale fiber networks, you may soon receive an offer from your wireless provider for a home broadband bundle. In this episode of All Day Digital, returning guest Tim Courtney, vice president of sales and business development for Further Enterprise Solutions, covers how the wholesale fiber business could usher in a new set of broadband service providers.
Tim Courtney: A big telecom provider, a big retailer, whoever at this point could put their name on someone else's service and offer it as a value-add to a bundle of other products and services they're selling.
Jeff Johnston: That was Tim Courtney, vice president of sales and business development for Further Enterprise Solutions, regarding how the wholesale fiber business could usher in a new set of broadband service providers.
Hi, I’m Jeff Johnston and welcome to the All Day Digital podcast where we talk to industry executives and thought leaders to get their perspective on a wide range of factors shaping the communications industry. This podcast is brought to you by CoBank’s Knowledge Exchange group.
We’re starting to hear more about fiber networks being offered in a wholesale capacity enabling a wide range of companies to offer broadband service. Think about a wireless operator bundling fiber to the home with their wireless service, or Amazon bundling fiber broadband with their Amazon Prime service.
Tim’s visionary perspective and extensive experience in building and managing both wired and wireless networks makes him a great guest to discuss the puts and takes of wholesale fiber network business.
So, without any further ado, pitter patter, let’s see what Tim has to say.
Jeff: Tim Courtney, welcome to the podcast. It's a pleasure to have you back with us again today.
Tim: Thanks, Jeff. Always good to chat with you talk tech, so much appreciated.
Jeff: Awesome, great. Hey, I'm really excited to talk to you today about wholesale fiber networks because that's something that I've been reading about a little bit more recently. It's a really intriguing business model and I'm anxious to get your perspective on a number of different things related to this wholesale fiber business.
Just to level set us here, Tim, maybe you can just explain what a wholesale fiber network is. To the extent, do you have any thoughts or insight into some of the major players? I know it's an emerging space, but maybe just let us get a better understanding of what this stuff is and who the main players are.
Tim: Again, my background's more co-ax cable TV and primarily wireless, but we're seeing fiber become more and more important part of the offering. T-Mobile has done their press release on their partners and their offering to the home. Obviously, Verizon with FiOS and AT&T with U-verse, they have their offerings too.
As it relates to wholesale, you can imagine that there are some companies that are trying to break into the fiber space, not on the retail side, but I'm seeing business models in pitches as it relates to the wholesale model. The wholesale model, you're not owning the end customer. A big telecom provider, a big retailer, whoever at this point could put their name on someone else's service and offer it as a value-add to a bundle of other products and services they're selling.
As you and I have talked in the past, it looks like the triple play, quad play speeches are over, and it's a bundle, and the bundle is mobile and internet. That's why there's a lot of interest in getting internet to the home, in business, in bundling that with your mobile phone service.
So could a company come into a neighborhood that doesn't have fiber? I'm pro not overbuilding fiber, so I would say first mover advantage, getting fiber to the home would be key. Then the wholesale provider would put that fiber from the house to the curb, the curb to the central office, and then into the cloud. I've seen some wholesale business cases where they're encouraging the homeowner to own the fiber to the curb, just like at least in Pennsylvania, you own the water line and sewer line, you don't own the electric or communication line today. Then maybe the city or a third-party picks it up from the curb and brings it to the central office and then gets in to the internet cloud.
There was a bunch of different models, but I think the wholesale, instead of competing on the retail level, you design it, you build it, and you maintain it. Once you're wholesale, you can sell it to maybe dozens of potential customers as opposed to retail.
Jeff: I know, that's great. I think you make a really important point around the bundle. We've seen the cable operators, Comcast and Charter, wholesale wireless capacity from Verizon, and my goodness, the success that those guys are having acquiring smartphone subscribers, it's nothing short of impressive, right?
Tim: Absolutely. You're seeing cable use the wireless networks as you said for wholesale. Then maybe we'll see the wireless companies flip and use third parties for fiber wholesale. It's definitely good for the consumer, more choices, and you can see lower pricing. Comcast has definitely then putting out their marketing message, “Go with us, not the wireless guys."
Jeff: If I'm a wholesale provider and I'm looking at a market that's underserved or unserved, and I build fiber to the home in a wholesale capacity, am I opening that up? This can look a lot of different ways, so you can opine on this a little bit.
Would it be like I would give an exclusive to one partner, so one company that wanted to provide fiber to the home service as a retail play? Or do you think it would be I'm the wholesale provider, I'm going to make this neighborhood network fiber to the home network available to multiple companies that want to provide a retail broadband play?
Tim: I think everything you just said is viable, but I think based on your experience and my experience in building towers, we would never build a tower unless we had an anchor tenant, let's say. I think the model we'll see is carrier X be my anchor tenant into this neighborhood and I'll give you 30, 60, 90, 180 days to sign up customers in this neighborhood. After that time expires, then I'm going to sell that wholesale home to anyone available. I think it's a combination of both.
Jeff: That's really interesting because you could have multiple companies using the same assets to provide the same service. There's no differentiation whatsoever in terms of that fiber experience, fiber to the home. How does one company beat another company out? I guess price is one way to do it, but how do you think about that?
Tim: This comes up all the time. As an engineer, one big network is more efficient than a bunch of smaller networks from a capital and opex, putting the redundancy aside, et cetera. If you look at the analogy I use is there's 10,000 trucking companies in the U.S., and they all use the same road network. Are you catering to geography, price, service, hours, nights, weekends? There's a lot of differentiation between those 10,000 trucking companies. Talking about three or four companies sharing an asset, I would say, "Hey, there's 10,000 companies sharing the road network in the U.S." Trucking companies don't build private roads, right?
Jeff: Yes, that's a good analogy. Where they could differentiate is they got bigger trucks, they got better trucks, they got faster trucks, they're more reliable, and things like that. I would think, and you alluded to this, and I'd like to expand on it, bundling. What else can you do with that fiber to the home service? I would think, if I'm Amazon for example, wouldn't I want to potentially offer fiber to the home on a wholesale network that I can bundle with Prime?
At the end of the day, I want more Prime customers. Maybe I'm able to subsidize the cost a little bit or be a little more competitive and bundle it with Prime and win that way. How do you think about that?
Tim: I think any retail brand should look about offering these services. Who would have thought 5, 6, 7 years ago that you would get your Netflix from T-Mobile? Now, any wireless operator you can bundle in your video services. You're looking at Verizon, AT&T, and T-Mobile, not just as a mobile phone provider, you're looking at them entertainment provider along with the mobile phone offering, let's say. Again, to keep your customers sticky, strong retail, it could be a car company, it could be a credit card company, it could be shopping, Amazon, Walmart, for example, any of those type of bundles I can see getting your internet or phone service from.
Jeff: Obviously, I don't even know the nitty-gritty of this from a finance perspective, but I'd just love to get your thoughts. If there's an unserved market, one option is to build a fiber-to-the-home network and provide retail service as a strategy so you've got to have billing and customer service and all that kind of stuff. Then obviously, the other option, which we're talking about today, is wholesale. If you're going to deploy capital in a market, how do you think about the puts and takes of the economics of it? Do you think it's that much more profitable to provide wholesale versus providing retail?
Tim: It's definitely not more profitable, and you have to have a longer financial return. This is long-term, low margins-- buying a U.S. Treasury bond, let's say, very conservative, very long-term. If you and I built a fiber network, could we do it cheaper than the big guys with all their overhead? Absolutely, we could definitely go build it. But when all three carriers offer fixed wireless, some offer fiber, that'll be expanding. Once they come in with a bundle, a pure-play fiber provider is going to be at risk. I'm already here picking this up. The WISPs, for example, are getting turned out with the big carriers because they're bringing in their fixed wireless bundling with mobile.
The consumer sees the value of buying two things to save money, as opposed to getting the-- It could be their neighbor who built the WISP network, but they're leaving that network. Nothing wrong with that network, but at the end of the day, a lot of these surveys I see, price is a key driver. The bundling is going to pay off. Again, as you mentioned, the cable TV guys are doing it, and now we've got the major wireless carriers bundling their fixed and fixed wireless offering into that same bundle.
Jeff: It's like do you want to have 100% of the whole market? When I say market and neighborhood, let's just say, or close to 100% because it's in a wholesale capacity, and there's multiple companies providing service on your network. Would you rather have that with lower margins, or would you rather have 30% or 20% of a market with higher margins? You just got to look at the numbers, but from a risk profile standpoint, longer-term it would feel like yes, this is a much lower-risk strategy that should be very stable for many years to come.
Tim: Well, the analogy I use is, do you want to compete against Amazon head to head, or would you love to deliver Amazon's packages for the next 20 years? It's probably a better bet to deliver the packages than try to compete against them.
Jeff: In our business, we're dealing with a lot of capital players, investors, and things like that. I will tell you, infrastructure funds, these big infrastructure funds that have raised billions of dollars to invest in the U.S., they have I think a more reasonable return requirement, and they also have a much longer-term time horizon. There's capital out there I would imagine to fund these kind of business models even though they may not be super sexy with super high margins.
Tim: Especially if you can get an anchor tenant, back to your original question or earlier question, if you get a major Fortune 100 company as the anchor, I would assume financing would be a heck of a lot easier with that as opposed to Joe's five-and-dime that could disappear tomorrow, potentially.
Jeff: Yes, absolutely. It's like you mentioned towers before. I know that if you're building a rural tower and if you've got one anchor tenant, funding that tower is usually not a problem. You can usually get access to capital because these are long-term leases with great credit tenants and so forth.
It feels like this would be an unserved and underserved market approach only. Could existing fiber networks and suburban and urban areas get overbuilt with a wholesale provider, or do you think that's unlikely?
Tim: Ideally, I'd like to see it as a taxpayer and wanting to make sure everyone gets internet access. I'd like to see it as underserved or non-served, but I think there's enough momentum that you could see some overbuilding potentially, hopefully not a lot, but I can see some of those models, especially with the carriers that have done very well with fixed wireless access. The high-end users, if I was a carrier, I didn't want to convert those to fiber as quick as I could so I could offer fixed wireless service to even more people in the neighborhood if I can get those high users out of the pool.
Those might be in areas where there's co-ax potential competition. Fiber, again, I wouldn't be keen to invest in a company that was just going to overbuild fiber.I'm a big believer that once you have fiber, that's the gold standard in internet access.
Jeff: For sure, you mentioned fixed wireless that's a good point because I think that T-Mobile said that on one of their conference calls that over half of their fixed wireless additions were in urban and suburban markets where they took share from cable. Presumably, those are HFC, hybrid fiber co-ax. Yes, I could see where it would make sense in those scenarios whereby if you're a T-Mobile, for example, partnering with a wholesale provider that's going to build fiber in those markets and then migrating your fixed wireless customers off of there would be good.
Because presumably over the long haul those fixed wireless customers that T-Mobile acquired in from cable, they could be vulnerable because if there is a good chance someone's going to overbuild fiber, whether it's a wholesale network or a retail network, most likely somebody's going to overbuild fiber in some of those networks. Is that the right way to think about it?
Tim: Yes, I've seen some very limited overbuilding. Again, to have a business strategy, are you going to get 50%? Is it going to be 50-50? Is it going to be a price war? It's difficult from that standpoint. Again, DSL, that's a no-brainer. Coax, that's even tough. The cable guys aren't defending their territory very well. Then fiber, it's even harder, I would say. If it's priced right, it's going to be hard to turn someone off fiber. Again, if you're leveraging the bundle, your mobile phone plus fiber, mobile phone plus fixed wireless, you may have a very good incentive to move.
Jeff: Sure. I guess if you believed your comments on co-ax if you believe in everything these cable operators have been saying about DOCSIS 4.0 and how they're going to be able to upgrade networks at an average or passings at an average cost of $100 to $200 and with symmetrical gig speed, that all sounds really good. If it ends up playing out that way, these networks could still be very viable for a long time.
Tim: I'm not hung up so much on the speed. The data I'm looking at it's more the reliability between co-ax, DSL, fixed wireless, fiber. Reliability is probably one of the number one things to look at. For example, I used one and a half to two terabytes of data at the home. I'm probably in the top 1% in terms of the usage, but I look at my peak speeds, I barely hit 50 megabits.
Jeff: Hey, Tim, who gets hurt in all this? Is there companies or industry or anything that we should be aware of where they're exposed to this whole wholesale business model, or is it, I don't know, who gets hurt I guess?
Tim: The one trick ponies, the ma, pa type operators that have been doing a great service to the rural suburban marketplace for many decades on end. The AT&T, Verizon, Spectrums, the Comcast, they need to grow their subscriber base and they're going to start coming out into the rural markets with their bundles. I would say if you can't offer landline and mobile, you're vulnerable.
You and I saw this in the early 2000s. How many WISPs, like the ARTs of the world, the Ricochets, et cetera, when you're a data-only play and you didn't have voice to bundle it, it came and went. Having multiple service offerings – you’re less vulnerable, let's say. Having a single only wireless internet or just an Internet Service Provider, you're going to be vulnerable.
Jeff: You mentioned the big guys, and if I look at what's happening there, you're seeing AT&T open to receiving external capital and partnerships to build out fiber networks. They're clearly not so much hell-bent on owning the whole network and managing the entire experience. You're seeing a willingness to maybe outsource some of that so this lines up with that strategy, right?
Tim: Correct. If you have three services, maybe you make profit on one and break even on the other two. Trying to compete with someone that's break-even, that's tough on just that one service.
Jeff: Cool, fascinating stuff. The bundle is back. The bundle is back.
Tim: We're down to two though. It's not the triple, it's not the quad we heard about, it's just down to the basic two, my mobile phone and home Internet browsing-
Jeff: Yes, that's it.
Tim: -small business internet browsing.
Jeff: This has been great, Tim. We've covered a lot of relevant stuff here, but before we wrap it up, I want to just give you an opportunity to share any final thoughts.
Tim: I would just say this is a great time to be consumer. We're getting more choice thanks to the big wireless carriers with their fixed wireless offering and AT&T bringing more fiber to America. Then the cable TV guys stepping up, offering us mobile phone service and DOCSIS 4.0. The choice, the competition is never been better in America to get onto the internet. I commend all those companies that are making those investments to provide internet to everyone.
Jeff: It's been really refreshing in this crazy inflationary environment we found ourselves in over the last year or so. If you look at communication services, we're not feeling the effects of that there. That's a one bright spot in an otherwise certainly challenging environment for a lot of Americans with higher prices, so it's been real good.
Tim: Couldn't agree with you more.
Jeff: All right, Tim. Well, thanks again for being on again. You're an awesome guest, and I love to get your insight. I appreciate you making the time to be with us here today.
Tim: You got it. Thanks, Jeff.
Jeff: A special thanks goes out to Tim for joining us on the podcast today. My two big takeaways from talking to Tim are one, bundling services is going to become increasingly important – but it’s all about wireless and home broadband bundle. The triple and quad bundles are a thing of the past. And two, a fiber wholesale strategy could be a compelling one for those looking for a long term, relatively low risk investment with modest returns. Of course market conditions always plays a role, but if a wholesale fiber network is built in an unserved or underserved market, chances are the competitive threat should be fairly limited.
Hey thanks for joining me today and watch out for the next episode of the All Day Digital podcast.
Disclaimer: The information provided in this podcast is not intended to be investment, tax, or legal advice and should not be relied upon by listeners for such purposes. The information contained in this podcast has been compiled from what CoBank regards as reliable sources. However, CoBank does not make any representation or warranty regarding the content, and disclaims any responsibility for the information, materials, third-party opinions, and data included in this podcast. In no event will CoBank be liable for any decision made or actions taken by any person or persons relying on the information contained in this podcast.