Consolidation is nothing new in the telecom space and it seems almost inevitable that the trend will make its way into the fiber market soon enough. Indeed, plenty of commentators have predicted a great fiber rollup is on the horizon and Frontier Communications Chief Strategy Officer Vishal Dixit agrees. But the operator, he said, is in something of a unique position when it comes to mergers and acquisitions.
“We’re large enough to potentially be a consolidator of smaller fiber players,” he stated during a New Street Research investor conference on Tuesday. “We’re also small enough to be consolidated or be acquired by another larger carrier. So, we’ll just have to see how it plays out.”
According to Dixit, one of the reasons fiber consolidation is likely is due to the fact that the sector “does lend itself to economies of scale.” The more an operator is able to build, the stronger their ecosystem, branding and product uptake is, he explained.
Some analysts have speculated that government subsidies for broadband could fuel a wave of M&A, as companies look to achieve scale and the efficiencies that come with it after money is awarded in the coming years. But Dixit said he wasn’t so sure the $42.5 billion Broadband Equity, Access, and Deployment (BEAD) Program would be a deal driver. On that front, he said it’s more of a wait and see situation.
In the meantime, Dixit said Frontier is focused on scaling up its business. And while it has received a lot of flak from analysts for the move, he noted that means lowering its 2023 build target to allow the company’s sales and installation engines to catch up.
Frontier built to 1.2 million locations in 2022 and was originally targeting 1.6 million locations in 2023. But it is now aiming to reach 1.3 million locations this year – an acceleration in absolute terms from 2022 but far below the originally forecast number.
“What we’ve found as we’ve scaled up the build engine is that we need to scale up all three in sync. And some of those other engines – in particular the installation engine – they don’t scale as quickly necessarily as the build engine,” Dixit said. “It’s not really a sprint building the amount of fiber that we need to build, it’s a marathon. And we have to set ourselves up to have the most efficient, strong and robust build, sales and install engine over the period of our build.”
While the installation piece has hitherto been a bottleneck, Dixit said the company is optimistic that engine can be scaled to accommodate more than the 1.3 million locations it is targeting this year.
What about copper?
Frontier is aiming to grow its fiber footprint to 10 million homes initially and sees an opportunity to hit a few million more beyond that number. But that plan will still leave some customers within its footprint with their legacy copper service.
Dixit noted Frontier’s copper customers continue to generation a “decent” amount of cash for the business. He added the operator will see how many of those locations might be supported by BEAD funding. For those that aren’t, it will then be left with a decision to either keep them or divest them in “some sort of asset swap," he said.