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Asset-backed securities are a good financing option for established providers
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A private equity investor named some of the key criteria that PE firms look at before they invest
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Getting buy-in from local communities can improve a rural fiber provider’s chance of success
CONNECT(X) ATLANTA — Panelists at a session last week discussed many angles related to the financing of fiber builds, including asset-backed securities; electric co-op partnerships; private equity investors and technical considerations.
One appealing way to finance fiber builds is through asset-backed securities (ABS). However, this is only available to established companies that actually have fiber assets, which they can leverage to secure a lower cost of debt.
“Definitely it’s an attractive way to fund network builds or upgrades. But I think you need to have fiber in the ground, subscribers, all those things, which takes time,” Dan Parfitt, managing director of Investment Banking at Stephens, said.
It’s not something available to new entrants in the fiber space.
Parfitt also noted what many have been seeing: some startup fiber companies that created their business models prior to the steep rise in interest rates are now struggling to reconcile their models. “And that is an opportunity for consolidation,” said Parfitt. “$800 per passing turns into $1,500 per passing.”
Since the introduction of the Broadband Equity Access and Deployment (BEAD) program, many private equity (PE) investors have entered the fiber market. Some PEs seem to be waiting in the wings to scoop up distressed startups or even established providers such as WOW!
Parfitt named some of the key criteria that PE firms look at before they invest: the demographics in an area, household income, poverty rates, incumbent competition, and the feasibility of aerial versus buried fiber.
“There’s still a lot of dry powder,” said Parfitt. “But the bar is higher and the knowledge base of those investors is a lot stronger than it was several years ago.”
All of the panelists indicated there aren’t cookie-cutter fiber financing models because there are always many variables.
“One of the overarching trends is a hyperlocal approach, making sure the way you’re financing your fiber build is specific to that market. What may work in L.A. may not work in rural Kentucky,” Phillip Boness, director of growth and strategies at the professional services firm Jacobs said.
William Davidson, director of strategic initiatives at NextEra Infrastructure Solutions, said, “It’s super important to make sure you have that local buy-in.”
Electric co-ops
One way to make a local connection is to partner with electric co-ops because they are usually well-known in rural communities, and people like to buy from their friends and neighbors. “That goes a long way in terms of reaching more people,” said Davidson.
Parfitt said that partnering with rural electric co-ops can also save a lot on costs because the co-ops already have pole infrastructure in place. That, in combination with BEAD funding, might make an attractive partnership arrangement between an ISP and a co-op.
ISPs might even consider approaching other types of utilities, such as water companies, which also want to have broadband connectivity throughout their service areas.
Aerial vs. underground
However, partnering with a co-op or other utility might not always be a great solution. It depends on the age and quality of their pole infrastructure. A utility with outdated poles will require significant make-ready and permitting work that can add months to the deployment timeline.
“It’s not always if you see an existing pole like it’s an automatic decision to go aerial,” said Boness.
If there are no existing poles available for aerial infrastructure, then the fiber deployer will have to trench the fiber, and that is very costly in terms of time and labor.
