Shenandoah Telecommunications Company (Shentel) is a relatively small, nondescript broadband provider in the US with just over 100,000 customers. It offers a mix of cable, fiber and fixed wireless service across parts of Virginia, West Virginia, Maryland and Pennsylvania.
There are probably hundreds of companies just like Shentel around the country – regional or rural providers trying to stamp out a living in the markets generally overlooked by behemoths like Comcast, Verizon and Charter.
But Shentel is instructive for a few important reasons: It's investing in a new growth strategy, and, as a public company, it's providing a very clear look into its operations. And for that reason, Shentel may well be a bellwether considering the US government is preparing to funnel a historic – almost obscene – amount of money into the US broadband industry to encourage exactly the kind of efforts that Shentel is undertaking today.
"We continue to expect our broadband business to have industry-leading sustainable growth as we build out our networks over the next several years," proclaimed Ed McKay, a 17-year Shentel veteran who was just promoted as the company's chief operating officer in charge of its buildout strategy.
Some financial analysts agree.
"With a strong growth runway, we expect the [Shentel] stock to trade at a premium to its broadband peer group," wrote the analysts at B. Riley Securities in a recent note to investors, arguing Shentel may well triple its annual operating income over the next five years.
Shentel historically has been a cable provider and mobile network operator, but is now looking to fiber and fixed wireless for growth. In mobile, the company recently finalized the $1.9 billion sale of its network and customers to T-Mobile, a transaction that the company said will help fully fund its business until it reaches positive free cash flow in 2024. And in cable, the company appears to be joining the likes of Altice USA and the UK's Virgin Media O2 with plans to mostly halt its DOCSIS network buildout and instead pivot to fiber in populated areas and LTE fixed wireless in unpopulated areas.
Ultimately, Shentel plans to cover up to 300,000 locations with its Glo-branded fiber service by 2026, up from just 46,000 today. With its Beam-branded fixed wireless network, running in 2.5GHz and 3.5GHz spectrum, Shentel hopes to cover up to 215,000 locations by 2026, up from just a handful today. Those efforts promise to more than double the company's current DOCSIS-powered broadband service area, which covers around 210,000 locations today.
To be clear, this expansion isn't cheap. Shentel's overall capital spending this year is expected to rise to almost $170 million, from just $53 million last year. The bulk of that spending is due to Shentel's fiber efforts. After all, it costs the company up to $1,400 to build a fiber line out to a rural location. That's certainly more expensive than the $350 per location Shentel is spending on rural fixed wireless locations, but it's less than the $1,500 to $2,500 it costs the company to reach a new location with DOCSIS.
How it's going
Shentel is hoping to leverage its cable expertise to increase the number of its fiber and fixed wireless customers in its expansion areas. In its legacy DOCSIS markets, Shentel commands almost 50% share, but in its fiber markets that number is just 15%. In fixed wireless – which Shentel just launched commercially last year – the company commands a share of just 4%.
Those numbers ought to rise, according to Shentel's McKay. "Based on our performance to date, we have increased our target terminal penetration for Glo [fiber] to 38%," he said on Shentel's recent quarterly conference call, according to a Seeking Alpha transcript.
McKay explained that Shentel has reason for optimism. He said the company has already reached 31% penetration in the neighborhoods where it launched Glo fiber services just 18 months ago.
Shentel has similar expectations for its LTE fixed wireless service. The company plans to double the number of locations it covers with the technology by the end of this year, to around 40,000, by spending around $3 million. The company's fixed wireless efforts are girded by its existing cell tower business, which services customers including T-Mobile and, more recently, Dish Network.
"We are encouraged by our strong churn numbers of approximately 1% and our ARPU [average revenue per user] of over $72," McKay said of the company's fixed wireless service. He said most customers are opting for the company's $80 per month fixed wireless plan, which offers connections of 50 Mbit/s. Other fixed wireless service tiers range up to $160 per month for 100Mbit/s services.
Shentel is also a bellwether for how the global chipset shortage – as well as potential workforce shortages in the US – might affect smaller broadband operators. McKay addressed a question on those topics during the operator's quarterly conference call.
"We have seen a definite increase in the lead-times required for raw materials for our Glo Fiber construction, and that includes customer premises equipment as well," he said. "We're now ordering fiber over a year in advance. We're ordering CPE [customer premises equipment] a year in advance as well. And we have a lot of fiber right now in our warehouse. So up to this point, we have not had any impact on our construction schedule because of supply chain issues, but we're monitoring that very closely."
He said the company has not yet had any problems hiring technicians to build its networks.
The Biden effect
With $65 billion in broadband spending nearing the finish line in Congress, how might that affect companies like Shentel? First, it's worth noting Shentel was one of the dozens of telecom operators that won money in the FCC's Rural Digital Opportunity Fund (RDOF) auction. That program could be used as a template to allocate some of the money Congress is currently debating, albeit potentially at a state-by-state level.
Further, Shentel is also making use of the FCC's Emergency Broadband Benefit (EBB) program, which provides money to low-income Americans to help them pay for Internet connections. Congressional legislation promises to increase such funding.
McKay said that Shentel so far counts 450 customers through the EBB program, but that most are existing customers.
"So we're not seeing a whole lot of traction with new customers at this point," he said. "But that is something with our door-to-door sales team. We are having them leave behind materials so that customers can get into the EBB program."
If Congress does ultimately allocate billions of dollars for broadband in the US, it's likely many will turn to Shentel for ideas on how to spend that cash. After all, the legislation appears to favor the construction of speedy fiber networks in locations that can support such offerings and fixed wireless technologies in areas that are difficult to reach.
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