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.” 

Verizon's Home Broadband Scale Gambit

Though some might criticize the debt implications or the strategy, there is a reason Verizon is pursuing an acquisition of Frontier: it is one way to gain scale in the home broadband market.

Consider that although all telcos trail the two leading cable providers (Comcast and Charter) in national market share (those two firms have at least 63 percent national share, Verizon has just nine percent share compared to AT&T at 23 percent share. 

That is a result of the smaller geographic footprint Verizon has, relative to AT&T, Comcast and Charter. 

ISP	Subscribers (millions)	Market Share (%)
Comcast (Xfinity)	32.1	32.6
Charter (Spectrum)	30.4	30.9
AT&T (Fiber)	22.6	23
Verizon (Fios)	9.2	9.3
Lumen (CenturyLink)	4.8	4.9
Cox	7	7.1
Altice USA	4.7	4.8
Other (including smaller ISPs)	1.6	1.6
Total	98.5	100

U.S. internet service providers compete on a geographic basis and not all providers face all other providers. Comcast and Charter, both cable companies, generally do not compete head to head. Neither do AT&T, Verizon and Lumen Technologies. 

But sheer numbers of homes and other locations passed vary as well, with Comcast and Charter passing the most U.S. homes. 

ISP	Estimated Homes Passed (Millions)
Comcast	60
Charter	55
AT&T	30–35
Verizon	15–20
Lumen	10–15
Frontier	10–15
Altice USA	8–10
Windstream	6–8

ISPs also generally count small business broadband accounts within their “home broadband” totals, as well. 

ISP	Estimated Homes & Small Businesses Passed (Millions)
Comcast	65–70
Charter	60–65
AT&T	40–45
Verizon	20–25
Lumen	15–20
Frontier	12–15
Altice USA	10–12
Windstream	7–9

Also, differences in “homes and businesses” passed by any single ISP’s network long have mattered for assessments of the degree of competition. For example, when looking at telco fiber-to-home competition for cable hybrid fiber coax networks, the actual degree of competition has been shaped by the huge cost of upgrading telco copper access networks to fiber. 

That has limited the actual degree of competition between telcos and cable companies for decades, as it rarely is the case that a given telco has FTTH deployed ubiquitously in all its geographies. 

ISP	FTTH Homes & Small Businesses Passed (Millions)	Total Homes & Small Businesses Passed (Millions)	FTTH as % of Total Passings
AT&T	25–30	40–45	60–67%
Verizon	17–20	20–25	80–90%
Lumen	5–7	15–20	25–35%
Frontier	6–8	12–15	50–53%
Windstream	3–4	7–9	35–45%
Consolidated	1.5–2	4–5	30–40%

Traditionally, the “best” data we have had on the market share positions of cable and telco competitors has come from Verizon areas, as that is were FTTH facilities are most-ubiquitously deployed. And in those areas, Verizon has been able to gain a bit more than 40 percent market share, while the local cable operator has been able to hold on to 45 percent to 55 percent of the market, with other independent providers holding generally single-digit shares but growing. 

In a growing number of markets third-party providers have targeted areas where telco FTTH is not available, and in such areas have generally been able to garner up to 20 percent share. 

In some instances, where a cable company mostly competes with a municipal fiber network, and the local telco has no appreciable residential and small business fiber coverage, the municipal provider tends to get 20 percent to 30 percent market share. 

Provider Type	Estimated Market Share (%)
Cable Company	60–70%
Independent ISP	20–30%
Telco (non-FTTH)	5–15%
Other ISPs	2–5%

The degree of “other ISP” market share is shaped by the coverage area selected by the attacking independent ISP. Generally speaking, such ISPs will choose portions of an incumbent’s territory to operate in, rather than overbuilding an entire city or town, for example. 

As in the case of telco-cable competition, that necessarily restricts the degree of head-to-head competition across an entire market area, and is reflected in the lower take rates we generally see when a cable company competes against any fiber provider that does not cover the whole local market.