T-Mobile's fiber JV may chase US government subsidies

A representative for Lumos confirmed to Light Reading the company is considering applying for US government subsidies to help fund the construction of fiber networks in rural areas.

"Lumos is considering BEAD funding as a part of its expansion strategy and other opportunities for public-private partnerships," a Lumos representative wrote in response to questions. "These resources support a critical need in the communities it serves for access to fiber Internet."

BEAD, the US government's $42.5 billion Broadband Equity Access and Deployment program, is intended to help finance the construction of telecom networks – primarily fiber – in rural areas. Funds are expected to be distributed by US states starting in 2025.

Lumos is the joint venture (JV) between private equity firm EQT and mobile network operator T-Mobile. Under an agreement announced last month, the two companies will each invest $950 million for a 50% stake in the JV. After that, they each promised to invest another $500 million into Lumos between 2027 and 2028.

Lumos will use the investments to expand its fiber network from around 320,000 homes today to a total of 3.5 million US homes in the Mid-Atlantic region by the end of 2028. T-Mobile will act as the company's "anchor tenant," selling T-Mobile Fiber branded services to homes in the Lumos coverage area.

Through Lumos, T-Mobile Fiber will be available to roughly 2% to 3% of the US population by 2028.

Funding into the future

According to T-Mobile executives, Lumos is now fully funded to reach the 3.5 million US homes with fiber by 2028.

"We decided, as we formed this, to fund it and give it the wherewithal with some additional debt, to have everything it needs from an equity standpoint to get to the 3.5 million homes passed, which we think is a nice threshold for us," T-Mobile CEO Mike Sievert said during his company's recent quarterly conference call, according to Seeking Alpha. "It'll be a multi-state footprint, it'll be big enough to matter, and of course that will be through a combination of debt and equity."

But T-Mobile officials didn't offer any further insight into the company's fiber strategy beyond explaining the mechanics of the company's Lumos deal with EQT.

With BEAD funding, Lumos could build fiber to locations beyond its goal. However, most industry observers believe BEAD subsidies won't fully cover the cost of network buildouts. Meaning, companies that receive BEAD funding will likely also need to obtain additional funds in order to complete their construction projects. It's unclear where Lumos might obtain that extra cash.

Debating T-Mobile's strategy

Moreover, some analysts aren't sold on T-Mobile's expanding fiber adventures. 

"It is impossible to read T-Mobile's obsession with wired broadband as anything other than a somewhat desperate search for a defense against Cable's convergence advantage. Cable can offer a converged offer everywhere; no other competitor can," wrote the financial analysts at MoffettNathanson.

Indeed, cable companies like Comcast and Charter Communications offer both mobile services (through an MVNO deal with Verizon) and wired broadband offerings across their entire coverage footprints. Meanwhile, wireless network operators like AT&T and Verizon only offer wired Internet services in a portion of their nationwide mobile network footprint.

"T-Mobile's constant flirtations with fiber are a distraction. And that's being charitable," summarized the MoffettNathanson analysts.

Others take a different view.

"T-Mobile's fiber strategy creates some complexity," wrote the financial analysts at New Street Research. "Investments in unconsolidated entities won't move the needle, short or long-term. If T-Mobile pivots towards much greater fixed / mobile convergence, we think they could create even more value longer-term, but the market would hate it in the short-term."

The New Street analysts added: "A pivot would require big deals. Now is the ideal time to strike, given relative multiples, but the company's strategy isn't settled yet, and the regulatory environment makes some big deals tough. We don't expect a pivot in the next two years (though a change in administration could make things interesting)."