Private Equity and Rural Fiber

I’ve been asked three or four times in the last few weeks why anybody would invest in building rural broadband networks with the goal of getting rich. I’ve been hearing the same rumors as everybody else that there are private equity investors ready to jump into the rural grant arena. I have no specific knowledge that this is going to occur, but I’ve run across several internet service providers (ISPs) recently who claim to have access to nearly unlimited equity funding. It’s easy to understand why somebody who doesn’t understand the rural industry might think this is a great time to invest. Just having a $42.5 billion Broadband Equity, Access and Deployment (BEAD) grant program on the horizon is bound to attract investors who think that free money ought to mean big returns. But I’m afraid that private equity investors are going to find a different business environment in rural broadband markets than what they are expecting. I suspect that part of the lure for new investors to the industry is the high multiples being paid recently for broadband networks. Some of the multiples I’ve seen in the last few years are the highest in my memory. But there is no reason to think that today’s high multiples will somehow accrue to rural fiber networks, especially if those networks aren’t generating much return. To answer the original question that I’ve been asked – why would private equity want to invest in rural broadband? The more I think about it, the more I come up with the same answer – I have no idea.

[Doug Dawson is president of CCG Consulting.]