Jeffries analyst says rural broadband market is ripe for investment

Jeffries analyst George Notter estimates that there are around 35 million to 40 million homes across the U.S. that are unserved or underserved with broadband. (Image by Daniel Dino-Slofer from Pixabay)

The Covid-19 pandemic combined with the trend of people leaving cities to live in rural areas is putting pressure on the U.S. government to fix the digital divide and that is resulting in lots of money being designated for rural broadband.  Not surprisingly, many broadband providers are now turning their attention to rural broadband, creating more competition among cable operators, telcos and wireless providers.

Speaking at the Fiber Broadband Association’s webcast about the rural broadband opportunity, George Notter, equity analyst and managing director at Jeffries, said that his firm estimates that there are around 35 million to 40 million homes across the U.S. that are unserved or underserved with broadband. He noted that currently the U.S. is adding broadband at a rate of about 3 million homes per year, but that means there is at least a decade more of investment needed to solve the digital divide. “The demand for this is going to be lasting,” he said.

He also added that solving the digital divide has become a bipartisan issue in the government and that’s why the government is now designating a lot of funding for broadband.  

For example, he noted that the Phase 2 of the Rural Digital Opportunity Fund (RDOF) will occur in a couple of years and that it is slated to deliver $11 billion in funding toward rural broadband. The recently signed American Rescue Plan legislation has also designated about $350 million to states and some of that funding will likely be for broadband. Plus, there is the Covid relief bill passed by Congress at the end of last December that designates $7 billion for broadband access for low-income homes.

Notter added that competition is heating up among cable companies, telcos and even wireless operators to try to meet this demand. He said that while the cable providers have had a lot of success adding broadband customers over the past few years the telecom operators saw their growth stall around 2015 and started to pause their investments in fiber. However, that has changed now. For example, AT&T is making a big push to increase its fiber footprint. The company announced earlier this month that it was expanding its fiber to 3 million more locations across 90 metro areas in 2021.

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Notter also noted that companies like T-Mobile and Verizon are now offering fixed wireless broadband services and targeting rural users with their offerings. “The wireless guys are getting aggressive,” he said. “They are looking for new revenue streams to get back to growth.”

He also was fairly bullish about fixed wireless adding that he believes the speeds are competitive and while there may be some debates about the reach of their offerings, it is a viable offering. “There will be many different tools used to reach rural users and fixed wireless is one of those tools,” Notter said.

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