Rural broadband consolidation over the next five to ten years is inevitable, according to a new report from CoBank.

“It seems to be not a question of if, but when, and how much,” writes Jeff Johnston, CoBank lead economist for communications and the report author.

Smaller rural providers will be happy to learn that CoBank doesn’t expect to see rural broadband consolidation to be as extensive as it was in the wireless or cable industries.

As the report explains, both of those industries had powerful economic reasons to consolidate. For wireless providers, it was important to get nationwide spectrum to minimize roaming costs. For cable companies, the goal was to get better deals with content providers by obtaining more viewers.

Things are different in the rural broadband market, notes Johnston.

Rural broadband consolidation is driven, in large part, by private equity investors that seek out companies meeting certain criteria. After the investors “reach their time horizon and return objective, strategic buyers could step in and acquire part or all of the portfolio companies, rebrand the service and consolidate the operations,” the report notes.

The providers most likely to be acquisition targets will be those that have built fiber networks in attractive markets, Johnston predicts.

Some rural providers are not likely to be acquisition targets, however. These include companies in high-cost remote areas and cooperatives, which typically are reluctant to sell, the report notes.

Major cable companies could be a wild card, according to the CoBank analysis. Companies such as Comcast and Charter might make acquisitions to expand their reach – although the author doesn’t expect that to occur in the near term.

The author also notes that inflation, labor shortages and higher interest rates have negatively impacted investors’ ability to upgrade networks and turn over their portfolios, which, he said, “will likely cast a cloud over M&A until costs and timelines begin to normalize.”

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