BEAD could boost the enterprise value of top US telcos by $17B – study

There are still lots of unanswered questions about the true benefit the $42 billion BEAD (Broadband Equity, Access and Deployment) program will bestow upon some of the nation's top telcos. But a "rough, preliminary estimate" from New Street Research indicates the BEAD opportunity stands to beef up their combined enterprise values by billions of dollars.

Telcos haven't divulged BEAD-eligible locations within their footprint. But to obtain an estimate, New Street Research employed a multi-step model to calculate the number of served and unserved homes that can qualify for BEAD subsidies. Based on its model, New Street Research believes that BEAD could boost the enterprise value of a handful of top US telcos (AT&T, Consolidated Communications, Frontier Communications, Lumen+Brightspeed and Verizon) by a combined $17 billion, or 7%.

Figure 1: (Source: Image by jcomp on Freepik)

Boiled down further, New Street Research estimates that those companies will be worth about $263 billion when they complete their current self-funded upgrades, and that this value could climb to $279 billion when the eligible BEAD markets are added.

"We don't think the ILECs get value for their existing plans, and so getting credit for the BEAD opportunity will take time," New Street Research analyst Jonathan Chaplin explained in the report. "In a subsequent report, we will show that BEAD-funded assets should probably trade at a higher value per unit than average fiber units."

In Chaplin's analysis, those telcos have a BEAD opportunity of a combined 6.86 million subsidy-eligible households. That estimate is led by 2.75 million subsidy-eligible locations for Lumen+Brightspeed, based on FCC data that is current as of June 2022 – prior to when Lumen divested certain assets to Brightspeed.

Here's a snapshot of how that all breaks down:

"Taken together, between BEAD-funded markets and adjacent markets where the returns improve thanks to BEAD funding, operators will likely have more fiber locations than currently assumed," Chaplin explained. "In addition, the average returns may improve both because BEAD-funded markets have higher returns and because returns in self-funded markets improve due to the impact of BEAD. If correct, ILEC assets may be worth substantially more than currently assumed."

Chaplin said the operators New Street is tracking have announced plans to deploy fiber to at least 73.4 million locations, a figure that could rise by 10.6 million (+15%) when BEAD is included. The increase in fiber mix could rise if there are markets adjacent to BEAD markets that become upgradable due to BEAD funds, he added.

More about the methodology

New Street Research based this analysis on a model that first determined the number of Broadband Serviceable Locations (BSLs) under 100 Mbit/s down and 20 Mbit/s upstream (deemed underserved) and under 25 Mbit/s down by 3 Mbit/s upstream (deemed unserved) by service provider. From there, New Street converted BSLs to homes passed based on numbers reported by the companies at the end of 2022 and compared to the FCC's reported BSLs as of June 2022. As a final step, New Street identified the subset of homes that qualify for BEAD, focusing on homes connected to copper that don't overlap with any other ISP.

New Street Research characterized the assumptions made in its model as "reasonable," but recognized that the approach does have some limitations. For example, they point out that AT&T and Verizon don't consistently report the total number of homes in their ILEC footprints, and that the FCC Broadband Map, as of June 2022, doesn't account for any builds or transactions that have happened since.

Chaplin said New Street Research intends to follow up with a more robust analysis of BEAD-eligible locations, including an analysis of the opportunity for cable operators and other service providers.

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— Jeff Baumgartner, Senior Editor, Light Reading