The Path to Open Access Fiber Networks

Authors: Matt Kalmus, Shashank Modi , Bora Goekbora , Riley Brown ?

Open access fiber networks have become increasingly popular in the digital infrastructure sector—a wholesale model where the service layer (ServCo) and infrastructure layer (InfraCo) are disaggregated, allowing multiple ServCos to offer services to end-customers, while paying fees to use the network back to the InfraCo. Open access networks are applauded for democratizing and accelerating access to high-speed broadband for consumers, while delivering stable returns to investors. Due to both the consumer and investor benefits, this model has taken off internationally, with major initiatives already in flight across Italy, Brazil, Australia, and the UK that will pass over 67 million homes with fiber. Open access networks are expected to help grow the wholesale last mile industry from $33B today to $45B in 2027.

However, open access fiber is still in a nascent stage within the US, as telecoms in the US have historically viewed their footprints as competitive, limiting interest in cost-sharing or infra-sharing models. However, this tide could be turning as economic pressures increase for self-funded network deployments and with suitable financing partners, with cheaper costs of capital, on the sidelines eager to fund projects. How and where will these networks proliferate, given the nuances of today’s US broadband market? We investigated both the applicability of the open access model in the US and its underlying investment thesis.?

Much of the buzz around open access fiber networks in the US has come from one of three players within the digital infrastructure ecosystem: (i) operators seeking financial partners, (ii) financial investors identifying areas to put their capital to work, and (iii) state and local governments looking to address the digital divide. For example, one of the largest announced open access initiatives to date comes from AT&T and Blackrock’s joint venture “Gigapower”, allowing AT&T to expand outside its 21-state footprint and pass an additional 1.5 million homes with fiber. T-Mobile also recently announced a fiber pilot expansion in Colorado using Brookfield’s Intrepid Fiber network, to start offering fiber in addition to their core 5G FWA service. From the public sector, one of the largest open access networks comes from UTOPIA Fiber, built by 11 Utah municipalities that serve over 100k residents and businesses via 25 different ISPs so far.

As interest and announcements regarding open access continues, its business case is ultimately what informs us as to where we can expect to see these wholesale networks gaining further traction in the US. Fiber deployment is expensive, with unitary economics ranging from $1,000 to $3,000 in CAPEX per home; this results in open-access models requiring lofty take up rates of ~30% to ~50% in urban and suburban geographies respectively. There needs to be a clear pathway to reduce commercial risk for open access networks to take shape in the US. It’s within this context that we identified four opportunities that are most suitable for open-access deployment in today’s market:

1. Anchor Tenant Model. We see an anchor tenant as critical for this business model – though who the anchor tenant is can vary. While AT&T serves as the anchor tenant in its Gigapower joint venture, UTOPIA Fiber shows another example where a municipality has served as the anchor to drive construction. Ultimately, an anchor tenant guarantees a minimum take-up rate and de-risks the investment. There have been rumors of multiple players, such as Frontier, Altice, and T-Mobile looking for fiber joint venture partners, so it is likely that we’ll see more of these operator-investor partnerships in the future, allowing open access to grow.
2. Limited Competition Geographies. With required take-up rates of ~30% to ~50%, areas with two or more high speed competitors can threaten the investment case. The dominance of CableCos in the US market also present a unique challenge: CableCos own and operate competing infrastructure, creating minimal incentive to resell fiber within their own footprint. So, to make the investment case work, either the incumbent cableco will need to be the project’s anchor tenant, or the network will need to be built in areas with a limited cableco footprint. So, we can expect more open access networks to appear in underserved geographies, where there is limited high-speed competition, and thus can achieve a higher take up rate.
3. Areas Eligible for Government Subsidies. With over $42 billion in government funds available for broadband subsidies, areas eligible for BEAD (Broadband Equity Access and Deployment) grants could be prime for a wholesale fiber model. Many government programs favor not just fiber, but an open-access model when awarding funds; so, with some or all the costs of deploying fiber subsidized, the required take up rate would be lower. Especially in rural areas that are traditionally more difficult to reach, the investment case becomes more appealing.
4. Middle Mile Model. While much of the focus for open access so far has been on last mile coverage, middle mile fiber can be an attractive area for open access too. Building open access middle mile networks avoids not just the high level of overlapping last mile coverage but also the added costs of deploying far into unappealing overbuild geographies. An open access middle mile network could encounter less competition and costs than a last mile network, thus making a more compelling business case.

So, for open access fiber networks to become a reality in the US market, there needs to be collaboration and coordination amongst digital infrastructure ecosystem players. Based on our experience at BCG, successful open access fiber initiatives connect carriers with capital. Given the context of the US broadband market today, major sources of capital can come from either government funding via BEAD grants or financial investors interested in a joint venture. For carriers, this means that now is the time to think about a BEAD strategy or the required funds to capitalize on relevant open access fiber opportunities—whether it be a footprint expansion in non-competitive areas, overbuild on legacy technologies, or entrance into the middle mile market. For financial investors, now is the time to make interest in open access fiber, and similar cost-sharing constructs, known to other players in the digital infrastructure ecosystem, allowing time to spark collaboration and identify the right partnerships. As cost of capital, supply chain challenges and competition persist, a more economical approach to deploying infrastructure will have to be adopted. Given these trends, there is a great opportunity for all members of the digital infrastructure ecosystem to find success through prioritizing efficient fiber deployment with open access models.