Follow the "Big Red" Breadcrumbs....
April 5, 2023 | At recent conferences and industry chit chats, there has been a lot of talk about fiber players pulling back. The laundry list of reasons is not overly surprising or really that unique. They include things like supply chain delays, labor shortages, inflation, etc.
While all of these factors are certainly true, if we look back at what history shows us, the one who moved first with fiber has actually become more ambitious with its fiber buildout than the goals they outlined in the 2015 / 2016 time frame. And when they led, others followed. So as not to bury the lead here is the bottom line: despite the recent chatter, the fiber game is still very much in the early innings.
History Lesson Review: Verizon. When I was an analyst, Verizon was the first fiber mover with its FiOS initiative. This was a very controversial move at the time given the aggressive capital spend needed to do this. Management was highly criticized for spending this much capital for a product which many did not think consumers would need or want. Ironically, the estimated cost to build back then was ~ $1220 / home (roughly the same cost as today).
At the time, Verizon's main competitor (AT&T) was focused on a fiber-to-the-curb product, U-verse. A simple search of both these terms (FiOS and U-verse) on each carriers’ websites vindicates Verizon’s original view of the world. Note that on AT&T’s wireline website there is no longer any mention of “U-verse” AT&T Internet | Home Internet including AT&T Fiber (att.com). Yet when you look at the same area of Verizon’s website, FiOS is very much alive and well What is Fios? Internet, TV and Digital Voice Phone Plans | Verizon. While this may seem like just a marketing move or brand change, it is more than that given AT&T’s clear shift to its fiber initiatives (Exhibit A: Blackrock and AT&T’s partnership).
So, why is there all this watercooler chat re: fiber slowdown? Wall Street seems to be jumping to this conclusion without really doing the work. They may be “hearing” but not really “listening.” While we understand some carriers (including AT&T and Lumen) have had to lower their near term fiber ambitions, ‘near term’ is bold and italicized for a purposeful reason. And, once again, Verizon may be the first breadcrumb to follow.
Why do I say this? History again is our guide. Let’s look at what Verizon is now doing compared to what it said it would do when it first launched FiOS. At the time it introduced FiOS, it had a footprint of ~33 million homes. The plan at that time was to get FiOS coverage to ~ 18 million homes (or just under 55 percent of its total wireline footprint).
Fast forward to today. Following the divestiture of some ILEC properties (specifically, Verizon divested ~8 million homes in its footprint to Frontier and others between 2005-2015), Verizon today has ~ 25 million homes in its wireline property. At a Wall Street conference just last week, we heard from Ed Chan, CTO of Verizon. His comments were very telling and offer some color that things may not be slowing in the fiber world as much as feared. Specifically, he noted that Verizon ended 2022 with 17.1 million FiOS homes and the target is to build an additional 500,000 this year and reach 18+ million by 2025. Doing this math, it would suggest that by 2025, VZ will have covered 72 percent (18 million / 25 million total homes) with its FiOS product. This represents a 20 percentage point increase in what it originally planned to build as a percentage of its footprint in 2015. Put another way, Verizon plans to build the same number of fiber fed homes (if not more) in a footprint that is 25 percent less than it was eight years ago.
Going back to how we started, if Big Red led the way in September 2004 (when it launched its very first FiOS market) and (based on their own public commentary) we now know that ambition has only grown.….how can others sit still? Simply put, Verizon will be an important petri dish of what others may (and should!) do. If this is the shape of things to come – then this implies fiber to home passings could get to 70 – 80 percent of all US households. Doing the math as to where we are currently (~ 47 million fiber fed homes today out of a base of 142 million US homes) we are only 33 percent of the way there. Stating the obvious that is a long way to 70+ percent.
This runway is not a short one.