AT&T, Verizon to lead U.S. fiber spending charge, but Altice and Comcast are gaining ground, says analyst

fiber optical (Pixabay)
Traditional incumbent service providers are being more open about discussing their fiber network expansion plans.

AT&T and Verizon have clearly set the pace for fiber network spending in the United States with wide-ranging plans to satisfy a broad set of consumer and business wireline and wireless needs.

Deutsche Bank Markets Research said in a research note that traditional incumbent service providers are being more open about discussing their fiber network expansion plans.

“Telecoms have become much more public signaling their intent to increase fiber investment, with AT&T and Verizon leading the spending ramp,” said Deutsche Bank Markets Research.

RELATED: Verizon signs $1.1B fiber purchase agreement with Corning, supports wireline, wireless broadband initiatives

After establishing its “One Fiber” initiative, Verizon signed two key fiber supply deals: it will spend $1 billion with Corning to buy 1.5 million miles of fiber over three years and a $300 million deal with Prysmian to buy 1 million miles of fiber over 3 years.

AT&T is being no less aggressive.

As part of a deal with the FCC for AT&T to acquire DirecTV, AT&T committed it would connect 12.5 million homes with 1 Gbps-capable FTTH network services by 2019. The service provider has connected over 5.5 million homes with hopes to connect a total of 7 million by the end of this year. Interestingly, AT&T said it might reach close to 14 million by 2019.

Meanwhile, CenturyLink has set a 3-year spending plan, committing to rolling out 100 Mbps and higher speed broadband services from 2 million homes passed in 2016 to over 10 million homes passed by 2019.

“CenturyLink expects capital intensity to remain 16% and during our channel checks, one telecom contractor indicated a slowdown in spending for CenturyLink over the near term,” Deutsche Bank said.

Overall, Deutsche Bank said that “telecoms/cable companies have indicated that they expect the fiber investment cycle to last at least a decade.”

5G, FTTH remain catalysts

What’s driving the ongoing fiber expansion plans is the ongoing mission to have converged networks that simultaneously support FTTH and 5G wireless services.

“To support the upcoming innovations such as autonomous driving, IoT, smart cities, the US needs to densify its fiber network,” Deutsche Bank said. “The US fiber penetration rate is 20% vs. 75% for leading OECD countries, which suggests a large gap needs to be closed.”

Deutsche Bank said in order achieve these goals, its “proprietary top-down fiber model suggests spending on fiber to the home will total ~$175B over the next decade (an additional $25-30B will likely go towards 5G).”

Verizon and AT&T are clearly leading this charge with plans to either build out and augment existing fiber routes by building their own facilities, renting, or purchasing regional assets.

“Telecom/cable companies are increasingly talking about the convergence of fiber to the home and the 5G rollout as one large investment cycle that will likely ramp further in 2018,” Deutsche Bank.

AT&T has maintained the idea that cost will determine whether the service provider will build or buy.

Depending on the market needs, Verizon also plans to look at either building its own fiber or purchasing fiber from others to support 4G and future 5G deployments outside of its wireline territory.

Matt Ellis, CFO of Verizon, told investors during the Bank of America Merrill Lynch Media, Communications & Entertainment Conference that the service provider will consider whether to lease, buy or build, dictated by the business case it’s trying to prove out.

“As we add fiber—and I think we’ve been pretty consistent in this—we can buy existing fiber, we can build fiber, or we can lease existing fiber,” Ellis said. “I think it is going to be geography by geography will determine what the best and cost-effective approach will be to add the capacity and generate the returns off of.”

Altice, Comcast get aggressive

While AT&T and Verizon are moving forward with their fiber plans, telcos will continue to face growing competitive service threats in the consumer and business domains.

Comcast and Altice have set some aggressive fiber spending patterns to accelerate consumer and business broadband expansions, for example.

Comcast continues to drive fiber into its network to support its ongoing DOCSIS 3.1 rollout across multiple states.

Specifically, Comcast announced in August that it was rolling out DOCSIS 3.1 gigabit speed internet service in four markets, including Philadelphia, Boston, Washington, D.C. and the entire state of New Jersey, among other areas.

The DOCSIS 3.1 footprint now also includes Northern Delaware, Baltimore and Charlottesville, Virginia. At the time, Comcast said additional markets will be “deployed on a rolling basis through the fall.”

“Comcast continues to push fiber deeper into its network, is rolling out DOCSIS Duplex over the next 24 months and indicated its capital intensity is in the 15% range,” Deutsche Bank said.

At the same time, Comcast is using its DOCSIS 3.1-based internet service across its northeastern footprint and its growing fiber network to bolster its pending SD-WAN plans for business customers.

Not content to follow the same path as other cable MSOs, Altice has set a goal to deploy fiber to 1 million newly constructed homes in New York, New Jersey and Connecticut by the end of 2018.

As part of its plan, Altice pledged in August to deploy FTTH gigabit-speed services across its Optimum footprint—as well as into some Suddenlink homes and businesses—by 2021. However, it continues to use DOCSIS technologies to expand gigabit-speed services in its acquired Suddenlink service areas.

Already, cable’s bets on expanding broadband availability and fiber are paying off as cable continues to crank up its broadband subscriber base. During the second quarter, cable operators added a total 230,000 of subscribers.