How many fiber players is too many for one market?

AT&T this week announced plans to deploy its fiber service in Mesa, Arizona, making it the sixth – yes, you read that right, sixth – operator to target the Phoenix suburb. Its big reveal came after Mesa’s City Council in July tapped four different ISPs including Google Fiber and SiFi Networks to deploy fiber there. Lumen Technologies has also said it will bring its Quantum Fiber service to the city.

Such overlap is becoming more commonplace across the country as incumbent operators and new entrants alike disclose their fiber plans. For instance, at least three fiber providers – AT&T, Bluepeak and Dobson Fiber – are all headed to Lawton, Oklahoma. This trend raises an interesting question: how many fiber players is too many for one market, especially when you consider many cities will also have an incumbent cable provider?

If you ask Chip Pickering, CEO of fiber trade group INCOMPAS, the answer to that question might be that classic line from the movie Mean Girls – the limit does not exist. According to Pickering, the broadband market today broadly lacks the characteristics of healthy competition. He stated that in markets where there are only one or two broadband providers, prices are higher, speeds are lower and service is generally worse than markets where there are 3 or more competitors. Thus, the more fiber providers there are in a market, the better.

"Right now, we can't build too much fiber," he said.

The latest data from the Federal Communications Commission shows that 97.7% of the country had access to three or more providers offering speeds of 25 Mbps downstream and 3 Mbps upstream as of June 2021. But that percentage dropped sharply with each step up the service ladder. Just under 30% of the country had a choice of three or more operators offering speeds of 100/10 Mbps, and that optionality was only available to 6.4% of the population at the 250/50 Mbps tier. Less than half a percent of the population had access to three or more providers offering speeds of 1-gig down and 100 Mbps up and almost 72% of the population didn’t have any providers offering those speeds at all.

Given all the fiber announcements that have flowed since June 2021, it seems this data is likely to shift dramatically. Besides a glut of funding, Pickering said one factor driving the fiber push into new areas is actually a trend in the pay TV market. The shift away from legacy video services over the past five years toward over-the-top streaming service has left an opening for fiber to compete with cable without having to offer the old triple-play bundle, he said. That’s “changed the economics of multiple providers in a market,” he explained.

But there’s still the question of return on investment if too many players are in one place.

Asked about the predicament AT&T finds itself in down in Arizona, MoffettNathason partner Craig Moffett told Fierce that despite appearances there don’t seem to be too many instances of overbuilders overbuilding overbuilders just yet. That said, things could get tricky fast.

He explained that when overbuilders go after a particular market, they usually only build to subset of neighborhoods within that area. “Those neighborhoods might cover just a quarter or so of the households, so a single metro can have room for multiple overbuilders without much if any overlap,” Moffett said. “Avoiding each other gets harder as more overbuilders target a given market. We’re certainly seeing a lot of markets becoming very balkanized as multiple players target the same metros, and squeeze themselves into sub-scale neighborhoods to avoid stepping on each other’s toes.”

Moffett added the reason so many companies are targeting the same areas is because there “simply aren’t that many markets with the right combination of density and aerial vs. buried infrastructure.”

He laid out three possibilities for what will happen next: previously announced numerical build targets will be cut to avoid redundant deployments, operators will pivot to target less attractive markets, or “they actually will start to overbuild each other, and then they’ll have to assume lower penetration rates, and much, much lower returns.”

Pickering acknowledged investment analysts may be concerned about the impact of overbuilding on pricing and returns. However, he predicted markets with a large number of competitors would end up regulating themselves and "eventually there'll be an equilibrium reached."