Wireless Does Need Wires…But If Given the Choice Between the Two, Which Comes Out On Top?
August 22, 2022 | People who have read my write-ups have often seen me borrow one of my favorite quotes from Ray LaChance – CEO of ZenFi – “wireless needs wires.” It is true.
But maybe “wires” take precedence over “wireless” in some cases?
Evidence of this may be the 8/1 announcement by Consolidated Communications (Ticker: CNSL) to sell all interests in its five Verizon Wireless JVs it had ownership in back to Verizon. The sale brought just under $500MM to Consolidated who will use the additional capital to invest back into its own business and push fiber to more homes in its region.
The interesting part about this move is as an analyst following Consolidated we always used to write about these Wireless JVs as almost a kind of a call option on wireless for the company. And that was a very good thing. It was like a cherry on top of a well-made sundae! It was consistent and stable cash flow.
Now – two years later – much has changed. There seems to be many unknowns about wireless these days: additional competition rearing its ugly head, rising spectrum costs (note: this past week T-Mobile – really the only large buyer of 600MHz spectrum – paid a financial buyer almost 2x the price this spectrum went for in the 600MHz auction…only five short years ago!), ARPU pressures, and the list goes on and on.
Clearly, with this move, we can deduce that Consolidated felt that this capital would be better spent in an area where it has more control over the direction of its destiny (and cash flow!). And while we all know FTTH is all the rage, the evidence is convincing that where Consolidated – and its other FTTH peers – bring fiber, significant penetration gains follow.
Much has been made of the negative / flat broadband net adds the large cable players saw in Q2’22. Yet it is ironic to note that the cable companies (who some would say are the smartest in the room often times) have had this perspective we now see from Consolidated – owning the wires (aka rails) is indeed better than owning wireless. As a result of its MVNO agreement with Verizon, cable has not felt a need to own the most prized wireless asset…spectrum. In fact, cable has essentially sat out of every major wireless auction the last few years (only exception was the CBRS auction of 2020).
If wireless does need wires, then the rail owners (cable and incumbent telecom) probably have the leverage. If we work from this assumption, more questions than firm answers emerge. These include (but in no way are limited to) the following:
- Does a wireless only player (think Magenta!) need to have fiber partners that offer them exclusive “rails”?
- If cable does not see a need for wireless ownership, it must be thinking of different solutions for its fiber. What is this solution? It may make some “edgy” to think of it……
- Cable vs. Telecom – who is going to be front-footed enough to be successful in this brave new world the space seems to be entering? Maybe both – in very different ways!
Time will tell. But this move by Consolidated likely will be remembered as a meaningful pivot that, if looked at through a wider lens, shines the light on very telling themes we should not ignore.