Opportunity Knocks as the U.S. Seeks to Catch Up to Europe in Broadband Adoption

Societe Generale’s Digital Infrastructure Team and PMP Strategy, a Paris-based consulting firm, recently co-hosted a conference to discuss the opportunities available in the Fiber to the Home (FTTH) market, contrasting the U.S. and European markets.

The conference, which was held at Societe Generale’s New York headquarters and presented virtually as well, attracted a range of broadband investors, and current and prospective lenders to US fiber projects.

“The nuances of the U.S. market provide several attractive opportunities for companies looking to enter or expand their presence and carve out an increased market share,” said conference panelist Richard Knowlton, Head of Telecom, Media and Technology (“TMT”) at Societe Generale Americas. 

According to Knowlton, nearly half (45%) of all U.S. households have access to one or no broadband networks with 1.0Gbps speed, creating a clear opportunity for the development of additional networks. 

Which in turn creates significant opportunities for lenders.

For one, lenders can provide corporate financing to create a second network in markets with low competition and moderate build cost. Building out networks requires significant capital expenditure, which drives the need by equity holders for creative solutions by debt providers.  

There’s also a role for lenders to play in providing large-scale project financing when network providers in suburban and rural areas upgrade their networks or shift to an open-access model to de-risk their upgrade investment and drive higher penetration. While less than 1% of the U.S. market is connected through the open-access model, conference panelists highlighted the potential for the open access percentage to grow to roughly 10% in the next five years and potentially 20% in the long run.

The greatest opportunity, though, is likely connected to the Biden administration’s Bipartisan Infrastructure Law’s Broadband Equity, Access, and Deployment (BEAD) Program. $42bn was pledged for broadband roll-out, notably last-mile grants in hopes of accelerating deployment in rural areas. With many providers seeking to expand their reach into these areas, there is a significant first-mover advantage to those able to secure subsidies. 

Companies interested in rolling out high-speed fiber networks in the U.S. also have an advantage of leveraging the experience of their counterparts and lenders in Europe. For example, Societe Generale, a leading bank in the financing of fiber in Europe, has already participated in 65 fiber deals for a total of more than €65bn in the region. The first greenfield financings were closed in Europe in 2018. European broadband implementation has a significant head start on the US, with new operators and business models in many countries. This presents opportunity to observe what is working, and potentially avoid pitfalls.  

According to Knowlton, the U.S. will borrow many things from European greenfield FTTH. There are three areas of heightened focus: (i) alignment between buildout (coverage) and commercialization (penetration), (ii) knowing the competitive situation for each market to be built, and (iii) allocation of risks (committed equity, build cost variance, competitive intensity, etc.) between debt and equity.  When Societe Generale helped during the structuring of a jumbo fiber transaction this year to provide a state-of-the-art fiber network to 1.5 million homes, the project took key features from European transactions, including ISP commercial strategy and a debt structure focused on debt per connected home.  

“One key message for the U.S. market,” said Knowlton, “was that you do not want to be the second wholesale operator in a market.”