CoBank

Generative AI is set to be a game-changer for the hyperscale data center landscape, prompting companies to build in new areas and benefiting rural America in the process. Data center companies have historically built hubs in urban areas for access to power and water, deeply integrated fiber networks, and proximity to Fortune 500 companies and government agencies. However, the processing dynamics of generative AI and the enormous power requirements of AI models are turning that model on its head.

CoBank's report reviews why the wireless and cable industries consolidated, and assess what could happen in the rural broadband market. Findings include:

The open access fiber network business model consists of a network operator who builds, manages and owns the fiber network and multiple ISPs who sell wholesale access to the network and resell it to residential and business customers. The ISPs are responsible for all the customer acquisition and support costs/activities, while the network operator is responsible for network operations. This type of shared network model is very popular in Europe largely because regulators have mandated it to level the competitive playing field.

For rural operators looking to take advantage of edge computing, partnerships will be key to their success. Taking a “build it and they will come” approach may not be the right strategy. Instead, the opportunity could be in partnering with “hyperscalers” (massive companies like Google, Facebook, and Amazon) that are looking to deploy edge computing equipment in rural America but don’t have the local resources/ capabilities to do so. Key information from this report includes: 

There has always been a valuation gap between public cable and private communication operators that offer internet, cable and phone services. In this report, we attempt to quantify the valuation gap and the factors driving it, and why it’s important to rural operators. We also weigh in on where we think valuations are headed. Key findings include:

The first phase of the Rural Digital Opportunity Fund (RDOF) was for unserved markets, so given their high-cost nature it makes sense that affordable fixed wireless played such a large role. In the subsequent round, we expect fixed wireless to play a reduced role in underserved areas, which tend to be more densely populated. Technically speaking, with enough government support, unserved markets can be connected with gigabit speeds via fixed wireless, but execution risks and the ability to secure letters of credit (LOCs) could impede an operator’s ability to deliver on its bid.

This report looks at the current state of the broadband mergers and acquisitions market including valuations, target companies, market catalysts, risks, and the impact COVID-19 could have on new sources of government funding. Key findings:

Rural telecommunication operators are taking on business and financial risks to ensure their communities remain connected during the COVID-19 pandemic. Many are providing free service and setting up free Wi-Fi hot spots, exposing them to cash flow risks. Setting up hot spots for school children to use while in the parking lot of a fairground is admirable, but this is not a sustainable model for rural operators or the community – and neither is the Universal Service Fund (USF) funding mechanism that only levies fees against telecommunication bills.