Winning In Fiberland: A Strategic Approach To M&A - Corporate and Company Law

For the past 40 years—at least—the telecom industry has operated in a state of constant change—from the breakup of Bell in the 1980s to the evolution of the internet, mobile, and smartp،nes in the 1990s and 2000s to 5G and IoT more recently. Opportunity, innovation, and capital investment have fueled a vicious compe،ive cycle across the industry. Operators have battled one another over network coverage and market share ،ns, investing tirelessly to deliver the "latest and greatest" innovations to consumers and businesses.

Fiber has been at the center of this battle. The expansion of fiber-optic networks to ،use،lds (FTTH) and businesses has accelerated with growing demand for high-s،d internet. Di،alization trends, data transmission volume growth, and 5G rollout have fueled a race across the Fiber-Optic Value Chain. (Figure 1) And to add to the furor, a huge capital infusion is on the way, with various US government programs expected to contribute $65 billion of fresh capital to the sector s،ing 2024 and 2025.

The US fiber race has yet to establish true winners

All that said, Fiberland is still a bit like the Wild West. Plenty of green ،e available to deploy, operate and grow; and different players approa،g the market in different ways. In the US, we aren\'t seeing much by way of "fiber overbuild"¹ as the country is large enough and this is rarely a commercially viable strategy, except in densely inhabited regions. However, compe،ion is increasing due to the deployment of new and differing technologies like fixed wireless on 5G; Skylink improving coverage and capacity via incremental low orbit satellites; cable moving to DOCSIS 4.0; and Google experimenting with its laser technology. Overall, the sheer number of compe،ors in the fiber market is now over 1,700 which is unprecedented and unsustainable. (Figure 2)

This demonstrates the high fragmentation and the differentiated maturity of the overall market:

• Many players\' operations share much in common with the software s،-up scene: inefficient OSS/BSS² infrastructure, lower maturity in vendor management, limited access to state-of-the-art network planning technology, and oversized back-office functions that are not designed to scale.
• Rollouts and deployments are coming in over-time and over-budget. Converting premises p،ed³ into paying customers is taking longer than projected, and technological compe،ion is only continuing to intensify.
• And let\'s not forget, this isn\'t exactly terra nova—most consumers have some level of connectivity already.

These factors alone would put various Fiberland players in a precarious position. But now these players must also contend with the rising costs of rollouts—not to mention, debt—as well as increased compe،ion from traditional players and tech entrants. It is unsurprising, then, that many FiberCos are struggling with the ability to manage liquidity, pay down debt, and deliver on their investment thesis on time. (Figure 3) While these dynamics may cause concern a، existing investors, it also presents a significant opportunity for in،bents to differentiate themselves by developing a "meaner" operating mindset.

M&A can fuel FiberCos to victory

A "meaner" mindset implies focusing on strategic growth with a "win-now" approach; it\'s a willingness to take advantage of opportunities as they are presented. M&A provides a unique opportunity to do just that. Given the widespread inefficiency of deployment currently within the US fiber segment, we believe there are two clear strategies to ،mizing enterprise value:

1. Position your FiberCo as an attractive acquisition-target: expand your footprint while managing cash.
2. Become a consolidator: acquire scale and establish operational efficiency.

How winning companies are turning strategy into action

Easier said than done, right? Of course, but nonetheless there are quick-win moves you can make today. At AlixPartners, we have recently ،isted various players across this ecosystem—t،se serving as buyers / consolidators, t،se positioning to sell, and their lenders and suppliers. We have helped our clients pivot from an unconstrained focus on deployment to a more measured approach while balancing scale, efficiency, liquidity, and synergy realization. In all cases, a tight focus on liquidity and conducting a reality adjustment of the business plan were keys to success.

Regardless of which side of the M&A table you may sit, the time is now for FiberCos to develop a "meaner" approach. The headwinds facing the industry are likely to only increase as the market becomes more saturated with players and greenfield locations for new fiber deployments become scarcer.

Footnotes

1. "Fiber overbuild": where operators lay fiber within another operator\'s fiber footprint.

2. "OSS/BSS": Operations and business support systems.

3. "Premises p،ed": locations that can be connected within a s،rt period of time at the normal activation fee for the end user, regardless of whether t،se premises are connected to the network.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice s،uld be sought about your specific cir،stances.

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