Brightspeed, the new connectivity provider formed by assets purchased from Lumen, is setting up its headquarters in Charlotte, N.C. Basically representing the assets comprising the old CenturyLink, Brightspeed serves mostly rural areas across the U.S. Southeast, Midwest and South Central regions.
The business plan to be executed by new owner Apollo Global Management focuses squarely on an upgrade of the largely-copper physical plant to fiber-to-home for internet access.
Brightspeed plans to build an XGS-PON network operating initially at 1 Gbps. But one new objective is ensuring that the Wi-Fi experience inside the home better matches the bandwidth of the access pipe.
What consumers experience as the “speed” of the access network these days is measured by the performance of the Wi-Fi in-home network. Brightspeed is expected to incorporate more measures to enhance the Wi-Fi coverage and speed indoors as an essential part of its “upgrade internet speeds” push.
The strategy rests on some short-term and some long-term value drivers for the new owners. Near term, Brightspeed believes its cost of FTTH infrastructure will be subsidized by new subsidies for building broadband plant.
That changes the investment calculation and helps improve the payback from new investment.
Low borrowing costs also are a reason for the push.
The longer-term goals are different, representing a belief that the fiber access assets will provide an alternative asset to stocks, bonds and other “turnaround” assets in the Apollo portfolio. The hope is that Brightspeed will provide predictable cash flow from a business with competitive moats.
That is similar to the thesis for owning airports, toll roads, seaports or other forms of infrastructure that have been investment targets by private equity and institutional investors.
In 2020, investment in telecom infrastructure represented as much as 35 percent of private equity deal value in the United States, according to Preqin.
There are other shifts as well. The financial return from ownership of traditional infrastructure assets is not as high as the returns from operating such businesses. In many cases, the return “as a data center operator,” for example, can be as much as double the return from “simple connectivity” business models.
The perceived upside now comes from additional expected opportunities in edge computing, private networks, internet of things and digital infrastructure in general. The argument is that many cloud or edge computing ventures are more valuable when combined with connectivity.
In addition, scale should increase potential returns, which is one reason for additional investments.
Also, a significant presence in the connectivity value chain increases the ability to participate in adjacencies, such as::
Data centers, including colocation services
Structured cabling
Distributed antenna systems (DAS)
Electrical, aerial and underground fiber deployment
Civil construction
Small cell or micro cell installations
Indoor DAS and outdoor DAS integration
What is not clear so far is whether “wholesale access” will be a significant part of the Brightspeed business model or not, as is the case for some other FTTH business plans preferred by private equity investors.
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