With BEAD monies, private equity, and technology developments continuing to impact the service provider market, we expect 2024 to continue to center around Broadband for All. Driving the continued focus on expanding access and accessibility will be a host of trends that will reshape the industry. Chief among them will be a heightened focus on the rigor and reliability in cost estimations to ensure higher success rates in the delivery of awarded networks and solid stewardship of the taxpayer dollar funding these initiatives.
Here's VCTI's take on the broadband industry's top trends for 2024.
- BEAD Poses Costing and Planning Challenges for Service Providers
Through the state allocations announced last year, we'll see the unprecedented BEAD money, $42.5B, start flowing into the market in 2024. In addition to intensifying competition, the program also comes with hindrances for small players – and complications for larger ones.
Smaller service providers will need smart bankers to help them get creative around financial requirements for bids – but they also have a terrific opportunity to partner with municipalities to leverage a local presence. Many of these smaller local service providers may not have as much partnership experience. Still, they can really shine here by leveraging a personal depth of knowledge and tight relationships within their communities that are harder for a large player to achieve.
Large players, on the other hand, are poised to use BEAD to create a competitive fortress for themselves and fund overbuild opportunities. However, they are vulnerable to making mistakes in their cost calculations as the sheer number of opportunities to consider forces them to rely on broad-based cost assumptions with cautious underpinnings. This can jeopardize their success in submitting a bid or even prompt them to reject highly attractive opportunities if those internal estimates are unduly inflated. On the flip side, if the assumptions are too rosy, they could be in the unpleasant position of choosing whether to withdraw from an award or go way over budget and continue once they've reached the detailed design stage. We already see money being returned and grant opportunities rebid because the costing assumptions were inaccurate.
- M&A Watch: Smaller Service Providers Will Continue to Get Snapped Up
Service providers must own assets to play in BEAD. As a result, a ton of private equity has been entering our industry. We'll see smaller service providers continue to get lucrative offers from new entrants and larger players. We will see valuations of these smaller networks climb over the next 18 months and should expect lots of M&A activity despite the continuation, albeit easing, of some of the financial headwinds.
- AI Tools Will Mean Lower OpEx for Service Providers
Even though many technology experts predict 2024 will be a year of disillusionment for AI technologies, we expect to see tighter applications that extend expertise and improve operations.
At VCTI, we are using AI technology to extend our expertise, utilizing the ability for AI to synthesize enormous amounts of data but marrying it to extensive network build-out expertise to help service providers and their construction partners make smart choices and accurate assumptions about deployments.
We're also seeing AI evolve to improve operations, with the potential to reduce the cost of OSS by 30 percent or within the next 12 months. This will help service providers retain margins and better compete – and will eventually translate to lower prices for consumers.
- Fixed Wireless Will Become More Prevalent
Deployments are still being planned with a "fiber first" mentality – but that is changing as the reality of the cost to reach many under/unserved homes and communities outpaces the available funds. Cost per customer is typically $1500-2000 for a fiber network, but in difficult-to-serve locations, the cost for FTTH can be 3-5 times or more higher, while Fixed Wireless can be deployed at a fraction of the cost. That is an enormous difference.
While T-Mobile and Verizon have set the stage for a national fixed wireless network, we expect to see larger service providers build hybrid networks that use fiber and fixed wireless to reach more households more efficiently. Incorporating fixed wireless into their expansion plans will help them plan costs better and leverage access grant funding.
- Labor Shortage Will Breed Creativity
Labor shortages will continue to impact the speed of deployments. However, technology development is stepping in to fill needs. We'll see the acceleration of applications that leverage AI to intake and analyze public data to alleviate the need to roll trucks and personnel to inspect terrain and utility poles during the feasibility phase of a project. And we can also expect to see the use of technologies like automated splicing during the deployment phase.
While the upfront cost of these new technologies could seem prohibitive at first, service provider teams will realize that in the end, they will make deployment more cost-effective and alleviate the pressures of labor shortages.
Conclusion
With more money coming into the service provider market through BEAD, private equity, and other sources, service providers will be under increasing pressure from their boards to grow their presence in key markets strategically. Their success will ultimately lie in their ability to position themselves for success locally in target markets, accurately assess costs when developing BEAD proposals, and leverage technology to make smart decisions about when and where to expand their network.
At VCTI, we are leveraging AI technology, data analysis, and years of experience to help service providers drive every dollar further and make smart investment decisions.
