Here's what the future of broadband M&A looks like

  • Law firm Ropes & Gray expects digital infrastructure M&A activity, which has slowed somewhat due to interest rates, to pick up in the next year

  • Government funding like BEAD will provide support to private broadband investments

  • A report from CoBank said consolidation in rural broadband will happen in the years ahead, it's just a matter of when

These days, you can’t go far in the broadband industry without hearing about some ISP getting acquired or an investment from a private equity company. Brightspeed, Consolidated Communications and Wire 3 are a few recent examples.

Ropes & Gray is a law firm that’s advised private equity firms in investments in fiber companies like Blue Stream Fiber and Point Broadband. It’s also helped Frontier with its $2.1 billion fiber securitization financing.

Fierce spoke with Ropes & Gray attorneys Taylor Hart and Brandon Howald to get their take on the state of broadband M&A and where it’s heading.

The firm estimates digital infrastructure M&A activity will pick up in the next year and will likely grow even further with the increased need for applications like generative AI (GenAI), Howald said. Insights published by Ropes & Gray indicate it will take at least 10-15 years to build out GenAI infrastructure.

The digital infrastructure space isn’t immune to the macroeconomic factors that are impacting the broader M&A market, Hart pointed out, such as interest rates and geopolitical issues. But he thinks digital infrastructure “is much more insulated” in that there’s lots of interest and growth.

“To some extent, the deal environment in this space has been much better than the broader M&A market in the last couple of years and probably will continue to be so,” said Hart.

It’s not just private equity firms eyeing fiber and broadband assets. He added there’s plenty of interest from infrastructure funds, real estate funds and “others that are doing a variety of things in the space.”

Of course, “there's always some sort of risk of picking and choosing the right opportunities and not over building in certain areas,” Hart said. At Fierce’s U.S. Broadband Summit last year, DigitalBridge’s Jonathan Adelstein delved into how private investors decide which fiber companies to go after.

Government funding like the Broadband Equity, Access and Deployment (BEAD) program is “additional encouragement” for the digital infrastructure M&A space, said Howald, as those programs focus on getting high-speed broadband to areas where it would be harder for investors to consider network buildouts.

Hart noted some of the government broadband funding has been “a little bit slow to kind of get going,” but now it’s starting to ramp up. Private investment into fiber, however, is growing “regardless of government funding.”

Rocky road to broadband consolidation

A report from CoBank noted while M&A in rural broadband has slowed due to high interest rates, consolidation is expected in the years ahead – it’s just a matter of when.

“The industry is heavily fragmented with thousands of uniquely structured operators offering either fiber, digital subscriber lines, coaxial solutions and more recently, fixed wireless carriers,” said Jeff Johnston, lead communications economist at CoBank, in a statement about the report.

Independent rural broadband operators have their own priorities and businesses cases, “which means many will not be M&A candidates,” according to CoBank.

“Some of these operators will get overbuilt with fiber from larger players and will struggle to survive,” said CoBank. “Others operating in high-cost, remote areas may not be attractive assets for an investor or another company to own.”

Value of ABS and fiber

Howald also touched upon asset-backed securitization (ABS), which is what Frontier did last year to facilitate its goal of reaching 10 million fiber passings. As the name implies, Investopedia noted ABS is a type of financial investment that uses income-generating assets as collateral.

“ABS continues to be a growing area of focus for both data center operators and fiber network providers,” Howald said. “Just the ability to obtain what’s typically lower-cost financing for these businesses is really desirable.”

Ropes & Gray has said 2023 was “a record year” for fiber ABS issuance and it will remain a good option for digital infrastructure assets.