Emerging new business model will increase competition as more internet service providers enter the market
DENVER, Oct. 26, 2023 (GLOBE NEWSWIRE) — National wireless operators and institutional investors are embracing a new broadband business model that could disrupt the market with increased competition and a compelling value proposition. Open access fiber networks, a fixture in Europe due to industry regulation, are gaining momentum in the U.S. as growth-hungry telecommunications companies are getting more creative in their approach to new revenue streams.
Structurally, the business model is relatively simple. A fiber network owner/operator sells wholesale network access to multiple Internet Service Providers (ISPs), which then resell it to their respective residential and business broadband customers. The ISPs are responsible for customer acquisition, billing and support services, while the network operator is responsible for network operations and maintenance.
According to a new report from CoBank’s Knowledge Exchange, open access network builders will initially focus on urban and suburban markets where the competitive dynamics and growth prospects are favorable. However, rural broadband operators could be exposed to increased competition from these networks in the years ahead.
“Rural operators are probably safe for now,” said Jeff Johnston, lead communications economist with CoBank. “But over time as the institutional investors look for new fertile ground, some rural markets may become a bigger priority. Underserved markets eligible for federal funding from the Broadband Equity, Access and Development program will likely be among the first rural markets targeted by open access network builders.”
The shared network model is popular in Europe, largely because regulators have mandated it to level the competitive playing field. The mandate effectively lowered the barriers to entry, enabling a wider range of ISPs to participate in the market. The U.S. does not mandate that large national providers open their broadband networks to third-party ISPs, but the business model is starting to catch on for economic and growth reasons.
Large telecommunications operators are realizing that giving up some network control to a third party while employing a more capital efficient model is a strategy that is starting to make sense. Whether it’s driven by a capital structure mentality, the current interest rate environment or a willingness on the part of institutional investors to fund open access networks, a new way of thinking is emerging.
The recent joint venture announcement from investment firm Blackrock and AT&T to establish a new open access network called Gigapower has put the industry on notice. Gigapower’s initial plans include building out fiber to 1.5 million customer locations outside of AT&T’s wireline footprint, with AT&T acting as the anchor tenant. T-Mobile has been exploring the open access model with trials in parts of Colorado and New York, but recent reports suggest they have much larger plans.
The competitive threat from open access networks will ultimately depend on who is building and managing the network, the execution and value proposition of the ISPs, and the competitive dynamics of the market. But despite the lack of any near-term competitive threat to rural broadband operators, Johnston said they should not dismiss the risk of future threats.
“Institutional investors have raised a significant amount of money and are actively looking to invest it in the U.S. broadband market,” Johnston said. “It’s a land grab for markets with the right competitive dynamics. And some rural markets could eventually become targets for open access network operators hungry for growth and backed by deep-pocketed investors.”
Watch a video synopsis and read the report, Open Access Networks Poised to Turn up the Heat in the U.S. Broadband Market.
About CoBank
CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 76,000 farmers, ranchers and other rural borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.
CONTACT: Corporate Communications CoBank 800-542-8072 news@cobank.com
