The White House made a splash in the broadband world last week with its announced $2 trillion infrastructure plan, which included $100 billion for broadband.
The proposal is currently light on details, but the legislation would prioritize construction of “future proof” broadband infrastructure, as well as networks owned by “providers with less pressure to turn profits,” including local governments, non-profit organizations and co-operatives.
A group of analysts at Morgan Stanley noted that broadband infrastructure spending should be directly beneficial to companies such as Casa Systems and CommScope. The potential for higher speed requirements as part of the plans and associated traffic increases would also “have a derivative impact on Corning, Ciena, Cisco and Juniper,” according to the analysts. But they noted that it could take quite some time before any funds are actually paid out as part of the proposed infrastructure plan.
“We would note the greatest benefit on rural broadband spend in the near term will remain RDOF (Rural Digital Opportunity Fund), the $20B program to be allocated over the next 10 years, starting in 2022,” stated the Morgan Stanley analysts.
Generally speaking, most telecom analysts see all the recent legislation and funding allocations geared toward closing the digital divide as a positive for the telecom ecosystem. It’s a “rising tide floats all boats” scenario.
But Cowen TMT policy analyst Paul Gallant worries that Biden’s plan might present some threat to profits in the telecom sector, especially for the service providers.
He noted that the Biden fact sheet said, "Americans pay too much for the internet - much more than people in other countries - and the President is committed to working with Congress to find a solution to reduce internet prices for all Americans."
Gallant wrote, “This is more forward-leaning commentary than we've heard from Biden or even most congressional Democrats on broadband prices. Congress (or the FCC) could mandate that all ISPs offer a ‘lifeline’ like tier of broadband service (either 50 megs or 100 megs) at a set price. Furthermore, the tone sets a negative view toward the industry.”