Public and private fiber operators tap asset backed security

  • Asset backed security (ABS) is having a positive impact on fiber builds

  • The analysts at TD Cowen noted that fiber builds are on-pace or accelerating this year

  • But BEAD funding is coming in slower than expected

One tactic that both private and public fiber companies are using to raise capital is to tap asset backed security (ABS), according to the analysts at TD Cowen.

ABS is a type of financial investment that uses income-generating assets as collateral and is an alternative to other ways of raising capital, such as corporate bonds.

For example, the public company Frontier inked a $2.1 billion ABS deal last August, making it the first public broadband company in the U.S. to secure funds backed by fiber-to-the-home (FTTH) assets.

TD Cowen hosted a fiber symposium in March, where its analysts spoke with a number of operators, and they talked about ABS being used to fund fiber builds. Cowen wrote, “FTTH ABS has been a game changer for Frontier and Ting, creating a new source of capital to help fund their builds.”

While Frontier and Ting are public companies, ABS is also having an impact among private companies. For instance, Metronet has executed four ABS funding raises, ALLO executed an ABS raise in 2023, and now Ziply is exploring a $1.9 billion ABS raise.

Cowen wrote, “The FTTH ABS frenzy has only improved access to capital for private operators.”

Cadence of fiber builds

The Cowen analysts also wrote about the cadence of fiber builds. They said that builds are accelerating among private operators, while they remain flat, but on track, for public companies. And the business case for fiber still looks good despite higher costs. 

“On our panel with private operators (ALLO, Lumos, Metronet and Ziply), the theme was ‘full steam ahead’ with accelerated build outlooks,” wrote TD Cowen. The panelists indicated no intention of slowing down with plans to grow their total fiber passings by 25-50% in 2024. 

While the “fast-as-possible” mindset is usually a good strategy to deter other overbuilders in a market, Metronet noted it has seen some fiber overlap from AT&T, which is continuing to build about 2 million new fiber passings per year.

In 2023, AT&T gained 1.1 million net fiber customers, at least partially from its efforts to pass more homes and businesses with fiber. The company has a goal to pass 30 million locations with fiber by the end of 2025.

Similar to AT&T, which is marching forward with its fiber build at a steady pace, public operators that had representatives at Cowen’s conference (Frontier, Lumen, Ting and Verizon), all indicated that their 2024 builds will remain mostly level with the prior year. 

Frontier again plans to pass 1.3 million locations this year, and Lumen plans to pass 500,000. Verizon is slowing its build from 475,000 locations in 2023 to 400,000 this year, but it remains within the same cadence range it has maintained for some time.

BEAD moves slower than hoped

Gary Bolton, the CEO of the Fiber Broadband Association (FBA), penned a first quarter update today in which he indicated that BEAD moved a little slower than everyone had hoped in Q1. He noted that the National Telecommunications and Information Administration (NTIA) approved Louisiana’s initial proposal on December 17, 2023, and the state has received its $1.36 billion BEAD allocation. But it’s the only state that has received its funding so far.

“While it was anticipated that Virginia’s initial proposal would receive approval in Q1, along with several others, those approvals remain pending,” said Bolton. “Unfortunately, NTIA has yet to approve initial proposals from any other state or territory, and we remain cautious in our expectations of the NTIA’s BEAD projects but do expect to see movement in Q2.”

The panelists at TD Cowen’s event were less optimistic about BEAD deployments this year. “In our Fireside Chat with Dycom, management noted it expects to see the first BEAD allocation announcements in 4Q24, with many more announcements throughout 2025,” wrote Cowen.

When will we see “shovels in the ground” with BEAD funds? Many panelists at Cowen’s event think it will be late 2025.