Millions of Americans around the country are now seeing $1,400 coronavirus stimulus checks show up in their bank accounts. And there's a good chance that at least some of that money could find its way into the bottom line of telecom providers, considering the ongoing value of Internet connections amid a pandemic forcing homebound working and schooling.
But that spending might just be the start of a much bigger stimulus bonanza for US telecom and cable network operators and vendors in the near future.
"The Biden administration is likely to be a tailwind, not a headwind, for broadband providers," wrote the financial analysts at MoffettNathanson in a note to investors earlier this week. "Up to now, almost all of the focus on the new administration has been on regulatory risk, and, in particular, on the prospects for Title II reclassification [for net neutrality] and whether that reclassification could lead to price regulation. Not enough attention has been paid to the upside potential from stimulus spending."
Specifically, the analysts noted that lawmakers have already allocated billions of dollars toward various broadband projects in just the past few months, including:
- The Emergency Broadband Benefit Program allocates roughly $3.2 billion to help poorer Americans pay for broadband services. It provides around $50 per month for services and up to $100 for a device.
- The Emergency Connectivity Fund appropriates around $7.2 billion for communications services and equipment for students, teachers and library patrons at locations other than a school or a library.
- And the Coronavirus Capital Projects Fund dedicates up to $10 billion for items including telecom and cable networks.
The FCC is currently in the process of directing some of this spending, and it appears to be working with both haste and zest. "I look forward to implementing this program, so we can help ensure that no child is left offline," noted FCC Acting Chairwoman Jessica Rosenworcel of the Emergency Connectivity Fund, in a recent statement.
The MoffettNathanson analysts expressed similar gusto about the potential for so much funding – up to $20 billion – to be directed to cable and telco providers, among others.
"The sheer scale of these numbers is hard to contextualize. We estimate the fixed residential broadband services market in the US today to be roughly $80 billion. The provisions of the new acts with broadband-specific elements are therefore equal to 25% of annual industry revenues," they noted.
Indeed, the FCC's recent Rural Digital Opportunities Fund (RDOF) auction in 2020 totaled $9.2 billion. And the agency's Connect America Fund Phase II (CAF II) auction in 2018 totalled just $1.5 billion.
The MoffettNathanson analysts also pointed out that this new broadband spending is focused on both expanding services in rural areas and making sure low-income households in covered areas can afford connections. That second part was missing during former President Trump's term, as some critics have pointed out.
The mother of all broadband bills
But all this spending could yet be dwarfed in the coming months if Congressional Democrats are successful in their legislative efforts. While there are a range of bills wending through Congress and state legislatures that could allocate more money for broadband services, none is bigger than the new Accessible, Affordable Internet for All Act, which would allocate an astounding $94 billion for high-speed Internet around the country.
"While the eventual timing and final outcome of the proposed infrastructure bill are far from certain, we note that the ... figure is the largest amount for US funding and ceteris paribus [a Latin phrase that generally means 'all other things being equal'] is positive for communications equipment suppliers," wrote the financial analysts at MKM Partners in a recent note to investors.
The analysts called out Nokia, Adtran, Calix, Ciena, Cisco and Juniper as vendors that could benefit from such spending.
However, it's worth noting that the Accessible, Affordable Internet for All Act has a variety of elements and stipulations, all of which could change and many of which could have specific impacts. For example, the analysts at MKM Partners pointed out that the bill currently requires speeds of 100 Mbit/s, above the FCC's current target of 25 Mbit/s for broadband service.
"We believe the new definition will favor fiber-based rollouts," they wrote.
Likely in response to these issues, some top operator executives are taking a wait-and-see approach.
"I think there's a 50/50 chance something gets done," said AT&T CEO John Stankey at an analyst event last week in response to questions about the potential for broadband stimulus spending. Stankey said he expects to know more about the issue in the next three to six months.
The topic is clearly an important one to Stankey, who argued for a wider overhaul of federal funding for broadband last year.
"It's really something the nation needs to address," he said last week, noting that AT&T did not participate in the FCC's RDOF program because "the rules were a little bit hard to understand."
But if new legislation is clearer, "there's no reason to assume that AT&T can't participate in those things moving forward," he said.
In comments to Bloomberg, Verizon CEO Hans Vestberg took a similar position.
"We've had a lot of discussions around that," he said in response to questions about federal funding for infrastructure, including broadband. He argued that accessibility, affordability and usability will all need to be addressed. "I think that conversation is going well."
So what does this all mean for US telecom and cable operators and vendors?
"We'll be the first to admit that we don't quite know how to forecast what all this stimulus will mean to individual operators," wrote the analysts at MoffettNathanson. "We don't know how efficiently it will be distributed, over what period it will affect subscriptions, when it will be allocated, and how much will go to services versus equipment or to fixed versus mobile. We have no expertise in forecasting any of these things (nor does anyone else; there's never been anything like this before)."
They continued: "We believe it is too soon to include any in forecasts. Still, it seems likely that estimates of net subscriber growth, particularly in the second half of 2021, will have to come up."
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