Copper to Fiber Asset Value Hinges on Take Rates

It can be difficult to appreciate the business strategy behind purchasing telco copper access networks and then upgrading them for fiber-to-home services, especially when those assets are primarily rural networks with lower home densities, higher capital investment per location and generally lower revenue per account.

The other issue is the wide variance in such costs, based on the scale of acquisitions and the various estimated “value” of the assets (location density, revenue per account, growth potential, competition, value to acquirer of synergies and upgrade potential). 

Still, as a rule, we can estimate that cost per account has grown since 2000 for either telco network assets or application assets (users). 

Acquired Company	Acquiring Company	Year	Deal Value	Cost per Location	Estimated Cost per Account
BellSouth	AT&T	2006	$86 billion	N/A	~$632
Time Warner Cable + Bright House	Charter Communications	2016	$67 billion	N/A	~$2,680
GTE	Bell Atlantic (became Verizon)	2000	$52.8 billion	N/A	~$555
Lumen's ILEC assets (Brightspeed)	Apollo Global Management	2022	$7.5 billion	$1,154	$2,885 - $5,769

Also, internet service provider acquisition costs (organic or by acquisition) vary dramatically based on take rates (the percentage of passed locations where customer accounts exist). For any given network cost per customer at 20-percent take rates (20 locations out of 100 are paying accounts) is roughly twice as high as that same network at 40-percent take rates (40 locations are customers out of each 100). 

At least that is what Hum estimates, looking only at potential multiple dwelling unit accounts (apartments or condos). Somewhat similar ratios arguably hold for single family residences as well, in urban areas, though magnitudes will vary in rural or very-rural areas. 

source: Hum

 

source: Hum

As a rule, the “average” cost of upgrading a telco copper access line to fiber is roughly $1,000 to $1,500 per passing (location), assuming 50-80 homes per mile, a suburban density. Costs arguably are lower for urban densities and higher for rural passings. 

But the key point is that the financial opportunity is to rebuild networks for fiber access and boosting take rates for those assets. The cost per passing is one figure, but even after spending the money to upgrade to fiber, if take rates climb, the value of the assets still exceed the cost of acquisition and upgrade. 

Year	Acquiring Company	Acquired Company	Deal Value	Cost per Location	Cost per Account (20% take rate)	Cost per Account (40% take rate)
2000	Bell Atlantic (Verizon)	GTE	$52.8 billion	N/A	$555	$555
2006	AT&T	BellSouth	$86 billion	N/A	$632	$632
2016	Charter Communications	Time Warner Cable + Bright House	$67 billion	N/A	$2,680	$2,680
2022	Apollo Global Management	Lumen Brightspeed assets	$7.5 billion	$1,154	$5,769	$2,885

For Apllos Global, for example, the acquisition of “mostly” copper access lines from Lumen in 2022 was about $1154 per passing. Once upgrade for fiber access (boosting per location investment to between $2154 and $2654), and assuming take rates can be boosted to 40 percent, the financial value of the assets still grows.