US cable and telecom companies have been insistent about driving fiber deeper into their networks, but how much fiber investment is realistic, and how much is wishful thinking?
According to an estimate by Deloitte, the US will need to invest between $130 billion and $150 billion in fiber deployments over the next five to seven years. To put that in context, AT&T Inc. (NYSE: T)'s capex budget is roughly $22 billion for 2017, but that covers spending for all types of infrastructure and other initiatives, not just fiber connectivity. AT&T lists software-defined networking, security, smart city initiatives, IoT and wireless among its investment targets, making actual fiber deployment just a fraction of its overall spending plans. (See AT&T Boasts 2-Year, $40B+ Spend .)
And AT&T has the biggest capex budget by far of any of its domestic peers.
As another data point, Verizon Communications Inc. (NYSE: VZ) has signed an agreement with Corning Inc. (NYSE: GLW) to spend at least $1 billion for fiber optic material by 2020; not an insignificant amount, but a drop in the bucket compared to the more than $100 billion total that Deloitte cites in its report. (See Corning Lands $1B Deal With Verizon.)
Since it's hard to get a sense of what the big telcos are actually spending on fiber deployments -- including both materials and labor -- perhaps the best number to look at is the all-in budget for fiber expansion in a single city. One of Verizon's most significant consumer broadband commitments in recent years has been its agreement to connect areas in Boston through a One Fiber initiative beginning in 2016. The cost? Three hundred million (that's million, not billion) dollars over six years.
Deloitte argues that the current industry environment doesn't provide enough incentives for fiber deployment, but it's difficult to make a precise evaluation because operators don't reveal many of the details behind their investments. It's also true that, whatever the target investment number should be, wireline spending is picking up.
In addition to telco initiatives, cable companies are also investing in deeper fiber networks. Comcast Corp. (Nasdaq: CMCSA, CMCSK), for example, has adopted a "hyperbuild" approach of adding metro fiber to a region and then building outward for both commercial and residential services. And Altice has committed to deploying fiber to the home across nearly its entire US footprint by 2022. (See Altice Plans FTTH for Entire US Footprint.)
Fiber provider Corning has also said that it's forecasting an increase in sales in its optical business to $5 billion by 2020, up from $3 billion in 2016, a fact cited in a recent Jefferies & Company Inc. report. Some of that will come through merger and acquisition activity, but the company expects some of it to come through natural market growth.
Perhaps the most important factor to consider in future fiber investments is how the business models for deployment are shifting. As Kagan analyst Jeff Heynen points out, there are now multiple new strategies for monetizing fiber networks, including cloud-based services, higher-quality video offerings and the promise of 5G wireless applications.
Heavy Reading analyst Dan Grossman also notes that many of these new services can be delivered by the same fiber deployments. As Grossman puts it, operators recognize the inefficiency of siloed infrastructure and are now looking toward converged fiber access platforms that should significantly improve their return on investment. In his report, Grossman even goes so far as to say that "fiber is sexy again," citing data that shows fiber construction is up across commercial, municipal and upstart service providers. (See Converging the Access Network.)
Whether the US can hit Deloitte's numbers for fiber investment remains to be seen, but certainly fiber is looking like a better financial bet than it has in many years. There's no doubt that more fiber deployments are on the way.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading