US Telecoms: Could fiber-to-the-home builds be a turning point?

We believe the US is in the midst of a 5-year fiber-to-the-home (FTTH) land grab that will see record levels of deployment in 2025 and 2026 given 1. renewed wireless carrier sponsorship and 2. unprecedented federal funding. We expect FTTH to grow from ~50% of US households to ~80% by YE28.

The big question is where will cable's broadband subscriber base sit by the end of the decade? We provide sensitivities on implied cable subscriber growth through 2030 under various telco fiber and market growth assumptions and believe the advantages of FTTH infrastructure are enough to overcome cable incumbency. We project that the two major competitors will split the market over time in overlapping areas. With this as a base case and assuming 85% overlap and 2030 targets for 20 million fixed wireless access subscribers or ~15% of the market, it will be challenging for the cable industry to grow broadband subscribers.

FTTH buildouts are occurring in unserved, rural areas (an estimated 9M homes in the US) and in the estimated 50% of the US served by cable but without a fiber alternative. Cable companies, the Rural Digital Opportunity Fund and most Broadband Equity Access and Deployment Program participants are pursuing the former (edge deployments), while the major carriers, private investment-backed open access providers and other third parties are focused on the latter (overbuilds). The economics of each strategy is underpinned by net cost per home passed, long term penetration rates, projected average revenue per user and margins. While the specifics will vary by market/location, we believe both areas can be attractive which allows users to see implied fiber returns under different assumptions).

1. Cable will see increased competition from FTTH infrastructure that will make a return to high speed dispersers sub growth difficult
2. A key player in the industry could generate 1 million FTTH net adds per year starting in 2027
3. Telcos will increasingly use bundling to drive EBITDA growth in wireline while supplementing wireless growth
4. Cable and telcos are both well-positioned to use edge-outs to expand their reach given regulatory strengths
5. We believe overbuilds and edge-outs have similar return characteristics despite the variance of the inputs