Some of us used to wonder what many telcos were going to do as they phased out their copper access facilities, since many are still covered by older laws mandating they provide service to any customer who asks for it. The problem is that those telcos must still have the means to provide service, even if they cannot use copper or optical fiber facilities.
Wireless, in some form, always has been the only realistic alternative. Whether that is satellite service, mobile phone service or fixed wireless, untethered platforms might always be the only way to provide universal service in areas where a fixed network using cables is impractical.
The latest advances allow standard mobile phones to communicate with low earth orbit satellites without any extra gear or software.
Which still leaves us with the problem of how to value stranded copper assets, which are declining in value, especially when they cannot be upgraded to optical fiber, and as consumers continue to migrate away from use of fixed networks for voice services.
Many potential fixed network “home broadband” assets owned by smaller telcos must use a blended valuation approach, as such firms generally own a mix of copper access lines that cannot be profitably upgraded to fiber-to-home; copper lines that can be upgraded as well as existing fiber lines that are operational.
Each asset has distinct valuation characteristics, with built fiber lines being the most valuable, non-upgradable copper lines the lowest valuation.
The big U.S. telcos arguably always have grown more from acquisitions than from organic growth. Verizon, AT&T, Charter, Comcast and T-Mobile, for example, have done so. In the FTTH business, which always is capital intensive, there also is a “time to market” advantage.
Building lines takes time. And even when built, take rates might remain in the 40-percent range. In other words, up to 60 percent of the assets are essentially stranded, with no revenue produced. So buying lines that do produce revenue (have subscribers on them) has lots of value.
If building FTTH lines costs between $800 and $1200 per location, and we assume 40-percent take rates, the cost per subscriber can range from $2000 to $3000.
If we add in marketing and acquisition costs, the full cost of provisioning a line with a customer on it can range from $2350 to $3700, assuming sales and marketing cost between $200 and $400 per sub, plus installation costs between $150 and $300 per subscriber.
Scenario | Cost per Passing | Take Rate | Cost per Subscriber |
Low Cost | $800 | 40% | $2,000 |
High Cost | $1,200 | 40% | $3,000 |
Average | $1,000 | 40% | $2,500 |
If that is the case, then it often makes sense to pay a premium to acquire customers and facilities rather than build them, if “buying rather than building” accelerates cash flow and also allows some additional economies of scale.
When copper access lines are upgradable, there is additional upside. And even dwindling copper access revenues provide some amount of revenue and cash flow, even if they are declining assets. For providers who own mobile network assets, there additionally is the potential to serve former copper customers with fixed wireless access as well, as a longer-term alternative to using copper access.
Eventually, that also will change the valuation of access network assets.
