Fiber Optics

Consolidated Communications reported quarterly results today and the narrative is squarely on fiber. The super-regional carrier reported an important milestone regarding Consolidated’s fiber transformation strategy.

Like other legacy telecom carriers, Consolidated is on a mission to become a fiber first company, shedding its copper DSL roots in the process. Consolidated executives are pleased with the progress.

Consolidated added 9.6K new fiber broadband subscribers in 2Q22, besting the previous year by over 3x. The company now has over 103K total fiber connections across its footprint, up from 77K a year ago.

That fiber momentum helped Consolidated reach a broadband milestone it hasn’t reached in over 7 years – positive net broadband adds for a quarter.

“We’re executing well on our consumer fiber expansion plan, having achieved record fiber subscribers and net positive total broadband connections this quarter,” said Consolidated Communications CEO Bob Udell on today’s earnings call. “Quite frankly, the first time in over 7 years.”

Legacy telecom carriers generally subtract their DSL losses from their fiber adds to get a true picture of total broadband net adds in any given quarter. After doing that math for Consolidated, the company added over 1K broadband subscribers in 2Q22. Consolidated has turned the corner on broadband growth thanks to fiber, but still has a ways to go.

The company still has 277K DSL subscribers, compared with 103K fiber subscribers, meaning roughly 73% of all Consolidated broadband subscribers are still on DSL. It does put things into perspective about the effort required to do the sort of transformation Consolidated is undertaking.

It’s going to take a while for the company to reach a true fiber first transformation. But that’s the path they are on.

To help achieve that, Consolidated plans to divest some wireless partnerships with Verizon. That transaction will generate $490 million (pre-tax), which the company intends to plow into its fiber investments. As of 2Q22, Consolidated has 831K fiber passings, which by my math, gives them a 12% fiber penetration.

Consolidated intends to reach 1 million fiber passings by the end of 2022, on its way to reach 2 million by 2025. That Verizon Wireless cash will help reach those goals.

Taking Broadband Customers From Cable Competitors

The broadband industry is seeing a bit of an interesting turn. Large national cable companies like Charter and Comcast have historically taken the lion’s share of net broadband adds, industry wide.

That trend came to an abrupt halt in 2Q22, with both Comcast and Charter reporting flat and negative broadband growth, respectively.

That’s a tad remarkable, in how quickly it happened. Only one quarter for both of those hugely-scaled companies to go from hundreds of thousands of net broadband adds to zero or losing subscribers. Again, across the span of just one quarter.

I would have expected a slower decline over several quarters, but this seems abrupt. It remains to be seen if this is an anomaly, or the start of a changing of the broadband industry guard. We’ll need to see a few more quarterly results to determine.

If it isn’t an anomaly, it begs the question: Are competitors, particularly fiber providers like Consolidated, finally having a competitive impact on cable behemoths?

Both Comcast and Charter CEOs brushed off the competitive implications, suggesting other factors including declining housing formation as the culprit for zero broadband subscriber growth.

But when asked on today’s call, where new fiber broadband customers are coming from, Udell suggested cable companies.

“I think it’s us winning customers from whoever the competitor is in our market, largely different cable TV service providers,” Udell said.

That echoes the sentiment put forth by a new cable competitor in the form of T-Mobile, who is offering a competing home internet service with fixed wireless. When asked recently, T-Mobile’s CMO said a little over half of new fixed wireless customers were coming from cable.

Looks like game on.

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