Congress is poised to pass a sprawling infrastructure deal which would allocate $65 billion for broadband expansions. But would that money keep the fiber flowing throughout the country or worsen the supply chain logjam?
Analysts at Morgan Stanley raised this question in a note to investors this week, pointing to AT&T’s recent announcement that it expects to fall short of its 2021 fiber deployment target due to supply chain issues. The operator said it will likely only reach 2.5 million passings, rather than its original goal of 3 million.
Other fiber players, including Frontier Communications, Lumen Technologies and Windstream, indicated they aren’t yet facing supply chain constraints. Still, Morgan Stanley’s team expressed concern “that adding this infrastructure funding program on top of the accelerated 5G and fiber builds in the industry risks further congesting the supply chain and impacting labor availability and costs as well as potentially fueling inflationary pressures further.”
Blair Levin of New Street Research told Fierce “There is a bit of a pig in a python phenomenon in that we already have a combination of four 5G deployments, a bunch of companies upgrading from copper to fiber for pure market reasons and others building out fiber due to pre-existing FCC funding.” So, what AT&T said about constraints in the market “is consistent with that,” he said.
Though Levin said he was unable to give a definitive answer about how an infusion of cash from the infrastructure bill might affect the supply chain, he predicted the impact would likely be mild.
“While there might be some delays caused by the increased funding, the market is usually pretty good at responding to such changes in the supply/demand equilibrium,” he said. “As we have seen in some Covid-related bottlenecks, there are temporary issues but they tend to be worked out fairly quickly. I think that the timeline is long enough to allow the market to adjust.”
He pointed to a New Street Research note from March which contemplated potential labor shortages stemming from the expected influx of funding and came to a similar conclusion. In that note, Levin explained there were concerns about labor shortages during the transition from 3G to LTE in the wireless market. But while “some deployments may have slipped by a short time” ultimately there “wasn’t a material impact to any of the stocks we cover, as the labor issues resolved in short order,” he wrote.
He added in that note labor positions for wired networks are easier to fill than some wireless positions because they don’t require the same level of expertise needed to, for instance, climb macro towers.
Echoing Levin's comment about the long timelines, Will Townsend of Moor Insights and Strategy concluded “any money that is eventually approved and distributed will take months to be earmarked and likely will be spread too thin” to cause serious supply chain issues.