Open access networks, which are deployed by one company and leased to multiple ISPs, are starting to gain traction in the U.S. A new report from CoBank suggests while open access expansion will primarily focus on urban and suburban markets first, rural telcos “should not dismiss future competitive threats.”
CoBank, a national cooperative bank that offers service to agribusinesses, rural utilities and communications providers, noted the U.S. broadband market is ripe for investment.
We’ve seen a number of private equity firms get involved in the industry. Earlier this month, Consolidated Communications announced it will be acquired by Searchlight Capital Partners and BCI for $3.1 billion, and Jana Partners bought a stake in Frontier.
On the open access front, Bloomberg reported in September T-Mobile was exploring a deal to become anchor tenant on a network built by Tillman FiberCo, which this summer secured half a billion dollars in funding to build open access fiber in five states.
According to CoBank, some rural markets could become “fertile ground” for investor-backed open access network providers “hungry for growth.”
“Rural operators are probably safe for now,” said Jeff Johnston, lead communications economist with CoBank, in a statement. “But over time as the institutional investors look for new fertile ground, some rural markets may become a bigger priority.”
He added underserved markets eligible for Broadband Equity, Access and Deployment (BEAD) funding “will likely be among the first rural markets targeted by open access network builders.”
However, CoBank’s report said rural markets in general will be “a lower priority” for ISP partners, especially markets that are considered high-cost.
The BEAD program requires each state to set an “extremely high cost per location threshold,” which defines the point at which a preference for fiber deployment is no longer cost-effective. How to set that threshold is tricky, as industry groups have noted.
CoBank also highlighted the importance of market competitive dynamics for open access networks. The report referred to AT&T’s Gigapower joint venture, which seems to be “focusing primarily on DSL markets.”
“However, if an open access network is built in a three-player fiber market, it will likely struggle to gain significant share unless the ISP is willing to sacrifice broadband margins to drive some other business objective,” CoBank said.