Shentel circles as it waits for new fiber players to stumble

Like a shark lurking in the deep, Shenandoah Telecommunications (Shentel) is ready and waiting to pounce on inexperienced fiber players who get in over their heads. Speaking during an investor conference this week, executives said that they anticipate being ready financially and operationally to nab up small players with little experience stumbling in the fiber field.

“We only have $50 million in outstanding debt today…There’s going to be opportunities for companies who are being challenged,” said Jim Volk, Shentel’s CFO. “We want to be an opportunistic buyer.”

For Volk, the ideal circumstances would be finding one, or more, beachhead acquisitions to build and extend its Glo Fiber agenda at a quicker clip via a larger geographic range. Considering all of the smaller players entering the market with a ticking clock to execute, Shentel is keeping its eyes peeled. “It could be that they weren’t fully funded going into this rising interest rate environment,” noted Volk. “There’s been a fair amount of start-ups coming in to chase the government grant money available, but doesn’t have the management expertise or…the relationships with the outside plant contractors, or [experience] buying fiber and taking six, twelve, eighteen months to receive fiber to construct.”

When Shentel launched its Glo Fiber home initiative in Q4 of 2019, the target was to deepen its commitment to greenfield fiber builds in markets that other providers hadn’t sniffed out yet. By the close of 2022, Shentel will hit 150,000 passings with fiber. Over the next three years, that figure will climb by another 100,000 passings each year.

Generally speaking, Shentel is targeting communities which typically have between 10,000 to 50,000 homes with households earning between $60,000 to $100,000 apiece. At this point, Shentel has averaged access to about 90 households and businesses per mile of fiber it has built. “We’re not building over existing cable or telephone footprints,” said COO Ed McKay. “These are [all] new passings with new customer opportunities.”

Shentel has leveraged its own experience as an existing broadband provider to execute and follow through on builds, even while fresh competitors rally and enter the industry at large. “We have a billing system in place and operational support to hit the ground running,” explained McKay. Construction headaches, like working with power companies for pole attachments, were already a part of everyday operations prior to the Glo Fiber project. That experience has given the operator a competitive edge compared to new players fumbling through expensive trials and errors after receiving federal fiber funds.

An additional oft-hidden perk to Shentel’s business was an early decision to build 220 macro towers that produce about $18 million annually for the company. “It’s a hidden asset worth well over $300 million if we decide to sell it,” explained Volk.

While current leases on these towers ebb and flow based on market consolidation and expansion across cellular players, if it was tied to an acquisition, Shentel would consider selling the towers to fund its fiber builds. “We’re not building new towers now, we’re focusing on capital for greenfield fiber home builds,” said McKay.

Of the $350 million dollars in Shentel’s existing credit, most will be funneled into building their fiber network as they expand from 130,000 to over 450,000 passings in the next three years. “We’re fully funded… None of our debt matures until 2026,” said Volk. “We have no need to raise capital in the short-term… A lot [of people] are building fiber, but overbuilding copper networks to keep their customers. That gets lost when comparing us to our peers.”

Shentel has also secured $70 million dollars in grants to build out more rural parts of their networks. At this time, cost per build breaks out into half company funds and half grants. But as money from the 2022 Infrastructure Investment and Jobs Act sifts down to the state level, Shentel is ready to score more on relevant grant opportunities.