What We’re Listening To: Recon Analytics, Craig Moffett Talk Convergence
MoffettNathanson’s Craig Moffett has been modeling the economics of fiber deployment since he was advising what would eventually become Verizon, and one of his many reads on the industry right now is a cautionary one. In a recent episode of “This Week with Roger,” a podcast hosted by Recon Analytics’ Founder Roger Entner and President Don Kellogg, Moffett worked through the math of continued fiber overbuilding and arrived at the conclusion that the numbers are starting to get trickier.
The core problem is density, an issue Moffett said has been at play for 30 years. “That, by the way, is a lesson that seems like we’re relearning over and over again,” he quipped. Moffett breaks down the U.S. into population density deciles, where the densest 10% of the country lives in census block groups that average around 700 homes per road mile while the second is about a quarter of that. Currently, the most overbuilding is concentrated in the fifth decile, where the homes per road mile drops to roughly 76. In four years—assuming current build projections prove to be correct—Moffett projects the industry will have reached the seventh or eighth decile, around 47 homes per mile.
Getting there requires not just laying more fiber, but potentially doubling the number of fiber miles installed annually to maintain current homes-passed targets. “It’s about 40% lower density, so you have to build 40% more road miles to move from the fifth to the seventh decile, and then it drops again by about half… That’s where you get to the cost implications,” Moffett said.
The supply chain is working against efforts, too. Entner noted that while at this year’s Fiber Connect, he felt data centers locked up allocations that were earmarked for BEAD deployment—and competing for the same labor force to build networks.
Moffett also flagged a wrinkle specific to the current political landscape. “The labor supply to do this has historically been, if not predominantly, immigrant. There’s certainly been a large immigrant component of the fiber deployment labor supply, and at a time when we’ve closed the borders to immigration, it makes it much harder to see where the labor force is going to come from to meet these demands,” he said.
The pricing pressure may be the most acute near-term concern. Moffett cited Comcast and Optimum both offering a $50/month, five-year rate lock, which he reads as a market signal for operators to put $50 offerings in their models, rather than $70. “The smaller operators that are trying to build into a world where it’s going to be $50 ARPUs are facing bankruptcy, and all of their business models are predicated on the assumption that there’s going to be a buyer out there that’s going to take them out at 12X EBITDA,” he said. “But what if there isn’t?”