Revenue Often Does Not Drive FTTH Value

It often is hard to determine when it is worthwhile to upgrade copper access facilities to fiber-to-home platforms, in large part because competitive dynamics, customer density and total investment (own copper and upgrade to fiber; buy copper and upgrade to fiber) costs vary so much. 

In many cases, the financial upside comes not so much from operating revenue results but from equity value increase.

Fiber networks generally command higher valuations compared to copper networks. For example, while copper access lines from Lumen were acquired by Apollo Global in 2022 for about $1,154 per passing, the estimated value post-fiber upgrade ranged from $2,154 to $2,654 per passing.

The value of fiber assets can increase dramatically with higher customer take rates. A network with a 40% take rate may be worth roughly twice as much as one with a 20% take rate.

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. Financial return often hinges on population density and competitive dynamics, however. Assuming the presence of at least two competent internet access providers, the fiber upgrade of owned assets might assume revenue from half to less than half of passed locations, since the other competent competitor will roughly take half the market share. 

For such reasons, many independent ISPs choose to build only in parts of any metro area, while many incumbent asset owners will tend to follow suit. In other words, it might generally make sense to upgrade in urban and suburban areas (often focusing on single-family residences) while delaying or finding different platforms for rural and ex-urban areas (fixed wireless, mobile substitution, satellite). 

But the key point is that the financial opportunity is to rebuild networks for fiber access and boost 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.  

For Apollo 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.

Year	Seller	Buyer	Assets	Valuation	Notes
2022	Lumen	Apollo Global	Mostly copper access lines	$1,154 per passing	Acquisition cost before fiber upgrade
2022	Lumen	Apollo Global	After fiber upgrade	$2,154 - $2,654 per passing	Estimated value post-upgrade
2023-2024	Various	Various	Fiber networks	$2,000 - $3,000 per passing	Typical range for suburban areas1
2023-2024	Various	Various	Copper networks	$500 - $1,000 per passing	Estimated range based on industry trends

Beyond those considerations, incumbent owners of copper access assets have other values to consider. Any telco that does not upgrade from copper to fiber likely cannot survive long term in the market when competitors do so. 

So irrespective of the actual business case, any access provider that wants to remain in business must consider fiber upgrades. “You get to keep your business” is the strategic rationale, not “higher revenues, lower costs and higher profits.” 

U.S. Cable Operators Will Lose Home Broadband Share, But How Much, and to Whom?

Comcast says it will lose about 100,000 home broadband accounts in the fourth quarter of 2024, a troublesome statistic given that service’s past-decade role in fueling company revenue growth. 

By most estimates, the U.S. cable operators will lose market share to other contestants to 2030. The issue is “to whom” the losses will occur. By volume, the shift to telcos is likely to be the biggest. Satellite access might gain, but the magnitude remains unclear. Share held by third-party independents might not change. 

ISP Segment	2025 Market  Share	2030 Market Share	Key Drivers
Cable TV Providers	58%	45%	Increasing competition from 5G fixed wireless Legacy infrastructure becoming less competitive Price pressure from new entrants
Telcos (Combined)	30%	38%	5G fixed wireless growth in suburban areas Fiber deployment acceleration Mobile/fixed service bundling
Satellite	7%	12%	LEO constellation maturity (Starlink, Project Kuiper) Improved latency and speeds Rural market penetration
Independent ISPs	5%	5%	Municipal networks growth Local fiber deployments Consolidation pressure from larger players

The issue is growing competition for new fixed wireless services on one end of the demand spectrum, plus fiber-to-home services on the other end. Put simply, fixed wireless seems to be taking market share from cable services among customers content to buy services offering 100 Mbps to 200 Mbps of downstream bandwidth, while FTTH is taking share among customers who want 1 Gbps or faster, and sometimes more upstream bandwidth. 

In my own case, I can get around 1 Gbps from both my hybrid fiber coax provider and a FTTH provider. That isn’t the issue. The HFC upstream runs at about 17 Mbps. The FTTH connection is reliably operating at 940 Mbps. 

And the point is not that I “need” 940 Mbps upstream. I don’t. The point is that upstream performance is 55 times greater for the FTTH provider than the HFC provider, at zero cost premium. 

For that matter, I don’t “need” 1 Gbps in the downstream direction, either. The point is that I wouldn’t consider buying any service operating at speeds less than 1 Gbps. It is not a matter of “need” but of preference or “want.”

Somewhat ironically, U.S. cable TV operators face almost the same issues as do telcos when pondering upgrades of their legacy networks. Traditionally, telcos have had to fund a complete replacement of their copper access networks with fiber-to-home platforms to support broadband services. 

And telcos have generally tried to be rational about the capital expenditures, generally deploying FTTH in greenfield areas (new home construction, for example). But that might only represent about one percent to two percent of housing locations per year. At that rate, it will take quite some time to complete a full transition to FTTH. 

Cable operators face the same dilemma. 

Telcos also have justified FTTH upgrades in neighborhoods where demand is greater and willingness to pay is higher. Cable operators might make the same decisions. 

And much hinges on changes in customer demand for symmetrical bandwidth and faster speeds, as there is a point where HFC cannot compete with FTTH (perhaps at about 10 Gbps). That might give cable operators about a decade of running room before a network replacement is required. 

That might assume that “typical” U.S. home broadband speeds reach 1 Gbps by perhaps 2026, with upgrades beyond that to 3 Gbps to 10 Gbps over a decade. 

But that also assumes the key issue is downstream bandwidth, not “symmetrical” or “more nearly symmetrical” bandwidth. Though most observers arguably do not believe upstream bandwidth symmetry is a huge issue for the near future, its importance seems likely to grow. The issue is whether demand for symmetry grows slowly or faster. 

Market demand for products sometimes is not based on “need” but “want,” and some users might already make buying decisions as though symmetrical bandwidth is preferable, even if no application currently requires it, and even if multi-user demands do not require it. 

source: ITIF 

So bandwidth demand beyond the capabilities of the HFC network will force a platform upgrade that telcos already have been facing with the upgrade to FTTH from copper access, even if HFC has a more-evolutionary path remaining, before a full platform shift is necessary. 

Cable operators have been able to gradually and incrementally upgrade their once-copper networks to hybrid networks featuring fiber backbones and retaining copper distribution. But a disruption is coming. No matter how far cable operators extend fiber closer to end user locations, increasingly more-difficult adaptations are necessary. 

Traditionally, the simple remedy was to replace coaxial cable in the backbone with fiber, which was fairly simple, as the rest of the network remained untouched. But moving in the direction of more-symmetrical bandwidth is tougher, requiring revamping all active elements of the copper network. 

High-split hybrid fiber coax networks allocate up to 204 MHz for upstream traffic, compared to only 42 MHz (USA) or 65 MHz (Europe) in sub-split networks. That represents as much as five times more upstream capacity compared to 42-MHz sub-split upstreams.

But even a high-split network will not be able to support symmetrical bandwidth, as FTTH systems now do. So long as customers do not demand symmetrical bandwidth, perhaps that is not an existential issue. 

But if the market shifts to a preference for symmetrical bandwidth, cable operators will, at some point, have to invest quite a bit more than they presently do in network capital investment, as they will essentially have to replace HFC with FTTH access networks. 

There also is a new wrinkle, namely that some demand for lower-bandwidth connections apparently has grown for fixed wireless alternatives. 

We can see that demand shift in statistics on home broadband net gains and losses. 

Company	Q1 2024 Net Broadband Subscribers	Q2 2024 Net Broadband Subscribers	Total Net Additions (Losses) Q1, Q2
Charter	(81,000) losses	(72,000) losses	(153,000) losses
Comcast	(38,000) losses	(34,000) losses	(72,000) losses
AT&T	Slight gains	Slight gains	Approximately 50,000 gains
Verizon	Minor losses	Minor losses	Approximately (50,000) losses
T-Mobile	226,000 gains	246,000 gains	Approximately 472,000 gains

Company	Net Change (Q3 2024)
Charter	-113,000
Comcast	-87,000
AT&T	+50,000
Verizon	+28,000 (Fios) plus 363,000 fixed wireless
T-Mobile	+415,000 fixed wireless

Build Versus Buy is the Issue for Verizon Acquisition of Frontier

Verizon’s rationale for acquiring Frontier Communications, at a cost of  $20 billion, is partly strategic, partly tactical. Verizon and most other telcos face growth issues, and Frontier adds fixed network footprint, existing fiber access and other revenues, plant and equipment. 

Consider how Verizon’s fixed network compares with major competitors. 

ISP	Total Fixed Network Homes, Small Businesses Passed
AT&T	~70 million
Comcast	~60 million
Charter	~50 million
Verizon	~36 million

Verizon has the smallest fixed network footprint, so all other things being equal, the smallest share of the total home broadband market nationwide. If home broadband becomes the next big battleground for AT&T and Verizon revenue growth (on the assumption mobility market share is being taken by cable companies and T-Mobile from Verizon and At&T), then Verizon has to do something about its footprint, as it simply does not have enough ability to compete for customers across most of the Untied States for home broadband using fixed network platforms. 

And though Frontier’s customer base and geographies are heavily rural and suburban, compared to Verizon, that is characteristic of most “at scale” telco assets that might be acquisition targets for Verizon. 

Oddly enough, Verizon sold many of the assets it now plans to reacquire. In 2010, for example, Frontier Communications purchased rural operations in 27 states from Verizon, including more than seven million local access lines and 4.8 million customer lines. 

Those assets were located in Arizona, California, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, Wisconsin and West Virginia, shown in the map below as brown areas. 

Then in 2015, Verizon sold additional assets in three states (California, Texas, Florida) to Frontier. Those assets included 3.7 million voice connections; 2.2 million broadband internet access customers, including about 1.6 million fiber optic access accounts and approximately 1.2 million video entertainment customers.

source: Verizon, Tampa Bay Business Journal 

Now Verizon is buying back the bulk of those assets. There are a couple of notable angles. First, Verizon back in the first decade of the 21st century was raising cash and shedding rural assets that did not fit well with its FiOS fiber-to-home strategy. In the intervening years, Frontier has rebuilt millions of those lines with FTTH platforms.

Also, with fixed network growth stagnant, acquiring Frontier now provides a way to boost Verizon’s own revenue growth.

For example, the acquisition adds around 7.2 million additional and already-in-place fiber passings. Verizon already has 18 million fiber passings,increasing  the fiber footprint to reach nearly 25 million homes and small businesses​. In other words, the acquisition increases current fiber passings by about 29 percent. 

There also are some millions of additional copper passings that might never be upgraded to fiber, but can generate revenue (copper internet access or voice or alarm services, for example). Today, Frontier generates about 44 percent of its total revenue from copper access facilities, some of which will eventually be upgraded to fiber, but perhaps not all. 

Frontier already has plans to add some three million more fiber passes by about 2026, for example, bringing its total fiber passings up to about 10 million. 

That suggests Frontier’s total network might pass 16 million to 17 million homes and small businesses. But assume Verizon’s primary interest is about 10 million new fiber passings. 

Frontier has estimated its cost per passing for those locations as between $1000 and $1100. Assume Verizon can also achieve that. Assume the full value of the Frontier acquisition ($20 billion) was instead spent on building new fiber plant outside of region, at a blended cost of #1050 per passing. 

That implies Verizon might be able to build perhaps 20 million new FTTH passings as an alternative, assuming all other costs (permits, pole leases or conduit access) were not material. But those costs exist, and might represent about 25 percent higher costs. 

So adjust the cost per passing for outside-of-region builds to a range of $1300 to $1400. Use a blended average of $1350. Under those circumstances, Verizon might hope to build less than 15 million locations. 

And in that scenario Verizon would not acquire the existing cash flow or other property. So one might broadly say the alternative is spending $20 billion to build up to 15 million new fiber passings over time, versus acquiring 10 million fiber passings in about a year, plus the revenue from seven million passings (with take rates around 40 percent of passings). 

Critics will say Verizon could do something else with $20 billion, to be sure, including not spending the money and not increasing its debt. But some of those same critics will decry Verizon’s lack of revenue growth as well. 

But Verizon also sees economies of scale, creating projected cost synergies of around $500 million annually by the third year. The acquisition is expected to be accretive to Verizon’s revenue, EBITDA and cash flow shortly after closing, if adding to Verizon’s debt load. 

Even if the majority of Verizon revenue is generated by mobility services, fixed network services still contribute a quarter or so of total revenues, and also are part of the cost structure for mobility services. To garner a higher share of moderate- to high-speed home broadband (perhaps in the 300 Mbps to 500 Mbps range for “moderate speed” and gigabit and multi-gigabit services as “high speed”), Verizon has to increase its footprint nationwide or regionally, outside its current fixed network footprint. 

One might make the argument that Verizon should not bother expanding its fixed network footprint, but home broadband is a relative growth area (at least in terms of growing market share). The ability to take market share from the leading cable TV firms (using fixed wireless for lower speed and fiber for higher speed accounts) clearly exists, but only if Verizon can acquire or build additional footprint outside its present core region.

And while it is possible for Verizon to cherry pick its “do it yourself” home broadband footprint outside of region, that approach does not offer immediate scale. Assuming all else works out, it might take Verizon five years to add an additional seven million or so FTTH passings outside of the current region. 

There is a value to revenue Verizon can add from day one, rather than building gradually over five years.