When a vision of growth arises in the mind of a small-to-mid-sized telecom entrepreneur/operator, often the very next step is for him/her to ask, “How will I pay for it?”
Described below are four distinct types of small-to-mid-sized telecom providers. Each delivers broadband content as a core part of its network.
Why do they need money? How much do they need? Who do they ask for funds? When do they ask? What is involved in the process? Is it public funding or private financing that they ask for?
These and a plethora of additional questions are “must asks,” if success is to be expected. This article presents the basics to get there from a private financing POV, and a view at what comes next.
Succeeding articles will provide operators with additional guidance through the lending process. These will include focused looks at key players in each silo, as well as a look at public funding.
Likely no better spokes group for America’s small-to-mid-sized cable operators exists than the Pittsburgh, Pennsylvania-based trade group, ACA Connects – America’s Communications Association (ACA). Formerly branded as the American Cable Association, ACA has, for decades, been guided by top execs including Matt Polka, president and CEO, Matt Polka; , Ross Lieberman , senior VP, government affairs; Rob Shema , executive VP/chief of staff; and Ted Hearn, communications VP. Like its peers below, ACA is eager to put new funding options and thus new funds into the hands of its then, usually, much better-off constituents.
For example, many small-to-mid-sized ACA cable operators are looking to study and implement new wireless operations, on top of their current wired models (See, article about cable operator, Midco, buying a regional wireless provider, WOW Lawrence (Kansas)).
Moves like this place the cable ops in the realm of a new generation of wired providers, known as “Hybrid Operators.” Another version of these “Hybrids” comes in the form of fixed wireless operators, adding more fiber to their infrastructures.
Not unlike their usual rivals, i.e., WISPs and FISPs (discussed below), the next generation of cable TV and other broadband providers needs mature financial support from those other than sometimes-unreliable friends and family. All broadband providers are competing aggressively in more populated areas, most are reaching deeper into rural areas, and thus are constantly looking at development options.
For these growth and long-term development opportunities, fortune supports them: more and more banks are “getting it.” More financing is coming to these four broadband sectors, as more banks understand and accept—as a substitute for traditional, personal, assets-backed collateral—the relative steadiness of loyal subscribers, together with a new-found appreciation for the financial strength that monthly cash flow presents.
Wireless internet service providers (WISPs) have been around since the early 1990s. They are also known as broadband wireless access providers, or BWAs. These operators’ growth as a U.S. industry has been sometimes slow, but steady, to the point where today they number well over 2,250 nationwide (See, “2017 BWA Report“).
Recently revised estimates by The Carmel Group suggest WISP/BWA 2023 U.S. subscriber growth will stretch to over 11 million in the next five years, from a current base of over six million users. Growth in overall U.S. industry revenue increases during the next two years from just under $4 billion currently, to over $6 billion. Concurrently and well into the future, churn and subscriber acquisition costs (SAC) remain the lowest in the industry (i.e., lower than satellite, fiber, cable, mobile, or telco). In general terms, return on investment continues to exceed that of the four major competitors.
Most BWA operator funding today is aimed at expansion. This expansion comes typically in the form of spending for new infrastructure, such as more fiber in the ground to connect the broadband pipe to towers and some neighborhoods. Other WISP development needs include next generation, in-home equipment (AKA: consumer premises equipment, or CPE), towers and antennas, marketing, operational purchases, supplementing government grants and loans, partner buy-outs, employees, benefits, spectrum acquisition, working capital, refinancing, and audits, as well as mergers and acquisitions.
Yet, traditionally, WISPs have been stymied by traditional banks and those maintaining traditional banking perspectives that base lending decisions primarily upon the pure collateral of the business, rather than a focus on the steadiness of cash flow and the loyalty of a growing subscriber base.
Recently, several bankers are beginning to investigate broadband and are finding new avenues to introduce those operators to better choices, having to do with terms and lending decisions. CoBank’s website notes, “CoBank customers form the backbone of the economy in rural America –- agribusiness, power, water and telecommunications.” iNet Capital professes, “Financing that provides secured growth capital to businesses in the fixed wireless and broadband industries.” Live Oak Bank claims, “Financing to acquire, refurbish, refinance and operate America’s small businesses.” And United Community Bank states, “We have small business financing options offered through the Small Business Administration that help your business grow stronger…loans for major fixed assets, payment of operating expenses, equipment purchases and more.”
The main U.S. WISP trade group, WISPA, assists member operators and vendors in their quest for a better financial basis upon which to expand their businesses. Non-members are encouraged to join WISPA, and members are recommended to reach out to WISPA communications director Mike Wendy, specifically within WISPA, in order to discover more about WISP funding choices. WISPA’s CEO and president Claude Aiken, transitioned to WISPA a year ago from then-FCC commissioner Mignon Clyburn’s staff, where he served as that office’s wireline legal advisor. Before that, Aiken was associate general counsel and special advisor on internet law and policy in the FCC’s Office of The General Counsel.
Newly appointed Fiber Internet Services Provider Association (FISPA) executive director Betty Burke has her work cut out for her on multiple levels, as she and her FISPA team try to grow a trade group of many hundreds, to many more hundreds of members, in the few years ahead.
FISPs are not unlike WISPs, in many regards. In fact, as noted above, many WISPs find that once they have created a wireless pipeline to profitably service their new wireless customers, that often the investment of wires into the ground or hanging from telephone poles is a good one, because of enhanced capabilities offered only by fiber. Those WISPs then become both FISPs and WISPs, in the true “hybrid” sense of the word.
As fiber continues to be generally regarded as the optimum form to deliver content to the world, the attractiveness of FISPs, to more and more consumers, will rise. Thus, as more and more financiers realize the trend of more broadband being delivered by more fiber operators, that financial playing field will become more fruitful and accretive.
These new “hybrid providers” (such as WISPs becoming FISPs, and cable ops becoming WISPs) then need additional funds to supplement their wireless with wired (and vice versa) growth. This is often because fiber can be so much more expensive to deploy than wireless (See, “2017 BWA Report,” page 12, figure 6, which notes on a relative scale that fiber usually costs five times more than fixed wireless to deploy, and cable costs typically three times more).
Taking Oklahoma-based @Link as a model, it calls itself a “Hybrid Wireless-Fiber Network.” Within its systems, @Link typically deploys fiber to its towers in the form of the trunk or backhaul of the content to that distribution point. Less often, @Link takes fiber right to the home, but only in rare cases where that makes sense. Adds @Link principal, Samual Curtis, “@Link still uses some wireless point-to-point backhaul wireless links, but when use increases, we often switch to fiber.”
More Money Moving
As noted above, in recently updated figures, The Carmel Group finds both the subscriber and revenue growth of just the WISP industry, to be substantial. Indeed, in a world looking inside the traditional pay TV industry and seeing significant shrinkage, there is on the other hand optimism among FISPs, WISPs, and “Hybrids.”
Much of this expansion comes as the wise money minds become more creative, making money not just for their institutions but, as importantly, working with and guiding their broadband lending clients toward making far more money – and thus “wise money” – in the process. That “wise money” will typically be the funding that comes from things like the lowest rates, plus less or no business collateral, longer payment time frames, and serving the borrower and its business after the loan closes.
It’s a good time – and getting better – to be a WISP, a FISP, a “Hybrid,” and/or a small-to-mid-sized cable operator in America. It’s also a good time to be a specialized SBA- and USDA-backed government lending bank, because those banks are increasingly jumping in, as well.
The money is beginning to move. And America’s broadband borrowers are delivering much better answers to that age-old inquiry: “How will I pay for that?”
Jimmy Schaeffler is the chair and CSO of The Carmel Group, a broadband, broadcast, and pay TV/video consultancy. He has spent nearly five decades studying, writing, researching and analyzing, working with every type of player in the space. If you are a small-to-mid-sized operator looking to expand or better understand the industry, and the financing and funding available, feel free to reach out to him at email@example.com.