Enterprise Broadband Expansion: Follow the Money

The age of unprecedented broadband expansion 

Thanks to historic spending on broadband networks to service the un- and underserved, fiber providers have also attracted big money from investors and private equity firms—raising issues for enterprise IT.

Just last month, Boston-based Berkshire Partners, a diversified private equity firm, announced a sizable investment in Point Broadband Fiber Holding LLC. The Opelika, Ala. firm provides fiber-to-the-premise internet services to 75,000 homes and businesses in small towns and rural markets in nine states.

Point Broadband has previously attracted funding from GTCR, a private equity firm, which made a strategic investment in the business in 2021. Since then, the six-year-old carrier claims it added over 100,000 additional fiber passings and entered two new states.

Also last month, Texas-based Nextlink Internet last month bought the fiber operator Bluestem Networks, its fourth such transaction in Nebraska alone since 2021. Nextlink is using $400 million in RDOF funds to fund its acquisition activities.

Broadband funding programs fuel industry advancement

An infusion of broadband funding for all programs and legislation, including the American Rescue Program Act (ARPA), the $1.7 trillion Infrastructure Investment and Jobs Act, and the FCC's $20 billion Rural Digital Opportunity Fund (RDOF) is helping carriers upgrade networks and extend them to close the Digital Divide. Fiber is essentially the medium of choice for these efforts, followed by fixed wireless.

This makes carrier networks an increasingly attractive investment for private equity firms and is fueling consolidation in the sector.

"It's a unique environment out there for broadband providers, largely due to all the government money that is out there," explained Jeff Heynen, Vice President, Broadband Access and Home Network for Dell'Oro Group, a global technology research and analysis firm. "With that subsidization comes the de-risking of the investment in building out a fiber network while still maintaining the benefit of immediately increasing the value of a network by moving from copper to fiber or fixed wireless to fiber."

Carrier mergers and acquisitions

There’s been a spate of fiber carrier M&As in the last several months, as well as investments from private equity firms in carriers large and small.

“With de-risking through subsidization, operators and PE firms can build scale through the acquisition of multiple smaller fiber providers,” explained Heynen. “And scale is what is needed to keep these operators solvent in the long term when the subscriber base isn't necessarily large, and there is always the threat of competition. Further, I think these acquisitions assume that there will continue to be subsidization of these networks so that they won't fail."

The fiber carrier green rush – proceed with caution?

Continued funding of fiber-focused carriers in the rush for broadband for all would seem at face value to be a win-win for the service providers and their enterprise customers. The rapid deployment of advanced optical technologies in regions that wouldn't otherwise see them is a big bonus.

But what of private equity firm stakeholders? Their standard operating procedure is to invest in needy assets, grow their value and cut unneeded or underperforming assets, including staff, to sell the carrier at a profit.

Private equity investments in broadband carriers and the firm's role in the consolidation of fiber-focused carriers need to be watched by enterprise IT, as this activity can cause disruption in crucial areas such as network performance, tech support, and customer service.

“IT managers who have businesses and/or employees in areas impacted by the consolidation, it will be very important to ensure that the service, support, reliability, and other important KPIs stay consistent with these operators potentially changing ownership once, twice, or maybe multiple times,” emphasized Heynen. “These kinds of organizational changes shouldn’t impact the SLAs customers are provided, but it’s been known to happen, especially when outside entities such as PE firms get involved looking to reduce overall costs to improve the bottom line.”

New and innovative carrier options for enterprises

Enterprise IT managers that want to minimize or eliminate the potential risk of their provider relationships during a time of historic change can opt for an established tier 1 operator. Stability and reliability are their key differentiators, though they may not effectively market them.

Enterprise IT managers can anticipate a buyer’s market as carriers look to land the business that they hope will carry them on beyond the big fiber funding years.

“I think that emerging fiber providers that target the enterprise market are going to offer more attractive packages—with better pricing, better SLAs, more security, etc. to try to target the biggest concerns of their end customers,” predicted Heynen. “We are already starting to see this on the residential side, and I suspect it will bleed over to the enterprise side, as well.”

A final word on broadband expansion for the enterprise 

Multiple government spending bills and initiatives aim to bring broadband to rural areas and those currently underserved by high-speed connectivity services. If these programs deliver on their promises, IT managers will have more enterprise broadband options to serve their user base.

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