Rural broadband valuations have “remained elevated” over the last 12 months and are likely to continue to remain at elevated levels, according to a new report from CoBank Knowledge Exchange, a unit of rural broadband lender CoBank.
“For fiber-rich operators, we believe EBITDA multiples in the upper teens, and in some cases even higher, will be the price range that investors and operators can expect for the foreseeable future,” report author and lead economist Jeff Johnston wrote in the report.
The report attributes the increase in rural broadband valuations to infrastructure funds’ “insatiable demand for telecom assets.”
“Because these and other investors need to put a large amount of money to work, we don’t see valuations coming down any time soon,” according to the report, titled Rural Broadband Valuations Remain High as Investors Move Down Market for New Opportunities.
Investors are likely to have a high level of confidence in rural broadband investment because of strong broadband demand and a growing willingness on the part of policymakers to provide funding for rural broadband.
The report includes a chart showing Comcast and Charter high-speed data service customer additions to illustrate strong demand for high-speed services. Apparently, the author chose to focus on the cable companies because virtually all the broadband connections those companies offer are high-speed, unlike for the major telcos that offer a mixture of slower and faster broadband speeds.
The COVID-19 pandemic and the resultant stay-at-home trend have been key demand drivers for faster broadband while also highlighting the lack of broadband in some rural areas.
“Hearing reports of kids doing homework in a McDonald’s parking lot, or the sick having to drive hours to the nearest hospital because they don’t have access to telehealth services, has focused Congress on bridging the digital divide,” the rural broadband valuations report observes.
Programs such as the FCC Rural Digital Opportunity Fund and potential future funding programs take some of the uncertainty out of investing in rural broadband, the author adds.
Fixed Wireless Now Viewed More Favorably
Increased interest in rural broadband also has helped drive a more favorable attitude toward fixed wireless on the part of investors, according to the report.
In a video, Johnston notes three factors contributing to increased interest in fixed wireless on the part of investors, including a scarcity of fiber operators, increased investment in fiber on the part of fixed wireless providers and the big funding wins that some fixed wireless providers have made.
Johnston doesn’t expect to see rural broadband valuations for fixed wireless providers reaching the level of fiber providers, but he sees fixed wireless playing a larger role in broadband networks as operators look for cost-effective ways to deploy coverage in high-cost areas.
Fixed wireless providers using the CBRS spectrum band will have a competitive edge, the report argues, and as a result, “we think multiples for CBRS fixed wireless networks will end up in the low- to mid-single-digit range.”
Johnston notes that low earth orbit satellites pose a risk to fixed wireless but he doesn’t see satellite operators as a major risk factor, arguing that they will have difficulty obtaining sufficient market share to justify the large investment that has been made in them.
The CoBank report about rural broadband valuations is available at this link.