The Gigapower joint venture between AT&T and BlackRock is one more illustration of how the local connectivity business model is evolving. First of all, the venture will operate on a wholesale basis outside AT&T’s core fixed network footprint. AT&T will be an anchor tenant on the network.
The open access network initially will target about 1.5 million locations outside the 21-state AT&T fixed network footprint. AT&T might not traditionally have been a fan of wholesale local access, but the capital requirements to build out networks in 29 states where it has no existing fixed network operations is daunting.
Cost sharing appears to be the way AT&T has concluded it must operate to expand its own retail operations in those 29 states, as a fixed network services provider. \
T-Mobile also is reportedly looking at some form of joint venture to start building its own fixed network capabilities. Cable One also looks to use joint ventures to fund its own ISP footprint out of its current footprint. In the United Kingdom Virgin Media O2 likewise has chosen to create a joint venture to build new facilities out of its current footprint.
Other service providers are taking other steps to boost capacity and internet access revenues outside their core region. Verizon is using fixed wireless for that purpose, as is T-Mobile, which historically has had zero fixed network assets able to provider customers with internet access.
Many independent ISPs are building their own networks as well. The point is that huge amounts of capital are required to expand fiber-to-home networks and it no longer appears ISPs can do so by themselves.
In the mobile segment of the business, though facilities-based competition has been the norm, there are some moves towards single-network patterns where wholesale access to a common platform is viewed as the only way, or the best way, to ensure rapid uptake of 5G and future mobile platforms.
Difficult business models for facilities-based competition are part of that analysis.
The growing joint venture movement in the fixed networks business also suggests a model change. At least where it comes to building out-of-region networks, full network ownership might not be viewed as the best strategy. But if the alternative is full wholesale, which might not be viewed so favorably, either, the alternative of owning some of the infrastructure might be viewed as a reasonable compromise.
That hybrid approach--own some of what you need or sell--could be an important developing trend, compared to the alternative of “own 100 percent” of what you need or sell. Even if desired, competitive market dynamics might make that solution unobtainable.
Business strategies that are more asset light have been proposed and considered for some time. In some markets, structural separation creating a wholesale-only model sets the ground rules. In the mobile segment of the business, asset disposals have become common, as mobile operators conclude they can monetize some of their infrastructure without sacrificing competitiveness.
The broad issue is how far this reevaluation of asset value can go. It is one thing to spin off tower assets. It is another to use joint ventures to expand into new geographies. It might be quite something else to conclude that the actual access network provides so little value that it can be procured using wholesale mechanisms, and that network ownership confers less competitive advantage than it once did.
It is too early to say a tipping point, in that regard, has been reached. Out of region, capital requirements are large enough that partial ownership might be the only alternative.
In region, leading access providers still prefer to own their core access infrastructure. But change is happening. How much change is possible is the next question.
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