Telecommunications
2/25/2008
Byline Article from Kenny Gunderman, EVP and Co-Head of
Investment Banking, Chad Crank & Ross Rucker
Nearly 21 percent of the U.S. population, or over 60 million
Americans, live in rural areas that are either un-served or
under-served by broadband services, according to Computerworld (as
of August 2007). Incumbent local exchange carriers (ILECs) prefer
to focus on the more densely clustered urban and suburban
demographics, where copper/fiber broadband is most profitable.
While advanced fiber broadband growth is projected beyond 2008, the
urban market is quickly nearing saturation. Some ILECs such as
Windstream, CenturyTel, Qwest and rural cable companies have rolled
out DSL and cable broadband in rural markets. These ILECs still see
attractive returns from extending their existing loop lengths with
additional copper/fiber-based DSL deployments. Yet these business
models can only stretch so far, as physical and economic
constraints prohibit service to the most rural customers far from
ILECs’ central offices.
Historically, demand for broadband in rural markets lagged the
rest of the country; today, however, broadband service is
increasingly considered a basic need among rural Americans — a
massive audience of telecommuters and customers with increased
buying power. When ILECs reach the DSL saturation level (which
should happen in the next one to two years), focus will undoubtedly
turn to other technologies intended to capture the massive yet
relatively untapped rural market share. Wireless broadband
services, such as WiMAX or satellite, are logical ways to extend
the network. Some small ILECs have already made the leap (i.e.
Evertek, CTC Telecom, 3 Rivers Communication) and several larger
providers have deployed wireless broadband services on a limited
scale, but we expect a surge in interest leading into 2009. Many
ILECs will look to develop wireless broadband services organically;
still more will see the benefits of purchasing existing wireless
broadband service providers with a built-in customer base and
wireless technology backbone. With this in mind, current wireless
broadband providers should be enhancing their product to prove more
attractive when buyers approach.
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