Open Access Networks, BEAD, M&A… Private Equity Eyes the US Broadband Market

Who’s the fastest ISP in the US? According to Ookla Speedtest, Cox was #1 in terms of download speed, while AT&T led the upload race in Q4 2023. However, it was estimated that millions of Americans still won’t access this high-speed internet in 2024. The Biden Administration is tackling the “Digital Divide” through the BEAD: the Broadband Equity Access and Deployment Program. The latter is a $42.5B initiative willing to ensure that every US citizen can receive high-speed internet by 2030, no matter where they live.  Despite this significant amount, the expensive nature of broadband deployments is forcing ISPs to partner with outside investors - Private Equity funds - to meet their deployment goals, especially in rural and underserved areas. Let’s analyze how Private Equity Funds are taking advantage of those needs by entering the telecom industry, and how they are helping ISPs to adapt to the connectivity challenges in 2024 and beyond. Private Equity Funds: Acquiring Local Customer Connections & Seeking Infrastructure Opportunities   Private Equity funds are targeting local operators which showed a significant ability to expand and reach new markets to set up even more deployments.In Q2 2020, Searchlight Capital Partners acquired the Northwestern business of Frontier Communications, forming Ziply Fiber, which boasted around 250K subscribers in Q1 2024. Three years later, Searchlight acquired Consolidated Communications for $3.1B, alongside British Columbia Investment Management Corporation.ISPs are likely to reconsider their operations on a market-to-market basis, as did Consolidated Communications in 2021 by selling its Washington state business to Palisade Infrastructure. In turn, the PE Funds investments will be driven by opportunistic investments based on regional analysis: Apollo Global Management for instance created Brightspeed in 2021, after completing the acquisition of the ILEC business of Lumen Technologies in 20 states. Which Key Criterias Drive the PE’s Telco Investments?  Funds are also targeting markets lacking a significant fiber presence. Being one of the first companies to enter a market enables actors to develop strong customer relationships and develop their brand image. It’s also a move that tends to prevent local ISPs who manage other types of access (namely DSL and cable) from developing a fiber offer simultaneously and overbuild. Then, PE Funds pay close attention to the demographics of a given zone, with metrics such as the population incomes. Eventually, the estimated cost of passing - the nature of the land and the possibility to build aerial fiber for instance - is an essential component of the decision as we’re about to see that funds are also on the lookout for infrastructure investments.  Fueling Expensive Infrastructure Deployments Besides acquiring retail actors, PE investments also head deeper into the telcos' needs, toward what is expensive at the moment: infrastructure deployments, especially...

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