Industry News
Analyst: Early warning signs show fiber optic bubble may burst
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Author : JIUZHOU
Update time : 2022-11-25 12:00:00
Analysts believe that if the return on investment in fiber optic overbuilding proves to be "insufficient", capital markets will eventually withdraw funds, which will cause the bubble to burst.
The overbuilding and expansion of fiber optic networks continues, even if the pace of these constructions slows slightly in 2022. But a series of economic challenges could reduce the overall returns on these greenfield projects, making the future look less bright, a top industry analyst has warned. While there is no doubt that the pace of fiber deployment has accelerated, one analyst said: "Increased labor costs, higher equipment costs, and higher construction costs due to higher capital costs all point to a lower return on investment for fiber overbuilding. Projects are pushed into less attractive, less dense markets, and those returns will only diminish further.” If, as one analyst suspects, the return on investment in fiber overbuilding proves to be “insufficient,” capital markets will eventually Fund will be withdrawn. "In fact, this is how all bubbles eventually burst," he added. One analyst doesn't see a reduction in fiber overbuilding anytime soon, but he points out that there are already signs that deployments by some operators have slowed.
Various factors have slowed the pace
While overall construction figures remain relatively high, some operators have recently blamed the recent slowdown in construction on a combination of factors, including labor supply difficulties, permit delays and rising capital and equipment costs. "Labor costs are often mentioned, but equipment costs are also on the rise," said one analyst.
According to one analyst, the returns on these investments “will only diminish further as new builds are necessarily pushed into less attractive, less dense markets.” One takeaway from this, he warns, is that excess fiber Not only will construction bring the lower returns initially expected, but it will also put upward rather than downward pressure on broadband prices.
Meeting labor demand questioned
Going back to the pace of construction, the current overbuilding program is labor-intensive and will only grow with the $42.5 billion broadband entitlement, access and deployment project underway. There are remedies, and one analyst points to the fiber optic technician training program launched earlier this year by the Fiber Broadband Association as an example.
"These moves may help expand supply, but are unlikely to fully meet demand, and in our view they will almost certainly fail to stem near-term labor cost inflation," one analyst wrote. Considering rising equipment costs and capital costs , an analyst believes that a 20% increase in fiber deployment (including fiber home coverage and connections) in the next two to three years is a "reasonable range."
On a related note, one analyst wondered whether operators would be forced to raise prices to help return to the level of returns expected when the fiber build out plan was originally conceived. While it's unclear whether competitive dynamics will allow this to happen, expectations for a decline in ARPU (average revenue per user) seem misplaced, according to one analyst. However, the high capital costs and deployment costs of fiber optic projects, coupled with deployment in less dense markets or markets with deep infrastructure, are bound to further reduce the return on investment for such fiber optic projects. One analyst warned: “The capital markets have sensed this dynamic long before the operators themselves, and they will divest. Of course, this is how the bubble bursts.”
The overbuilding and expansion of fiber optic networks continues, even if the pace of these constructions slows slightly in 2022. But a series of economic challenges could reduce the overall returns on these greenfield projects, making the future look less bright, a top industry analyst has warned. While there is no doubt that the pace of fiber deployment has accelerated, one analyst said: "Increased labor costs, higher equipment costs, and higher construction costs due to higher capital costs all point to a lower return on investment for fiber overbuilding. Projects are pushed into less attractive, less dense markets, and those returns will only diminish further.” If, as one analyst suspects, the return on investment in fiber overbuilding proves to be “insufficient,” capital markets will eventually Fund will be withdrawn. "In fact, this is how all bubbles eventually burst," he added. One analyst doesn't see a reduction in fiber overbuilding anytime soon, but he points out that there are already signs that deployments by some operators have slowed.
Various factors have slowed the pace
While overall construction figures remain relatively high, some operators have recently blamed the recent slowdown in construction on a combination of factors, including labor supply difficulties, permit delays and rising capital and equipment costs. "Labor costs are often mentioned, but equipment costs are also on the rise," said one analyst.
According to one analyst, the returns on these investments “will only diminish further as new builds are necessarily pushed into less attractive, less dense markets.” One takeaway from this, he warns, is that excess fiber Not only will construction bring the lower returns initially expected, but it will also put upward rather than downward pressure on broadband prices.
Meeting labor demand questioned
Going back to the pace of construction, the current overbuilding program is labor-intensive and will only grow with the $42.5 billion broadband entitlement, access and deployment project underway. There are remedies, and one analyst points to the fiber optic technician training program launched earlier this year by the Fiber Broadband Association as an example.
"These moves may help expand supply, but are unlikely to fully meet demand, and in our view they will almost certainly fail to stem near-term labor cost inflation," one analyst wrote. Considering rising equipment costs and capital costs , an analyst believes that a 20% increase in fiber deployment (including fiber home coverage and connections) in the next two to three years is a "reasonable range."
On a related note, one analyst wondered whether operators would be forced to raise prices to help return to the level of returns expected when the fiber build out plan was originally conceived. While it's unclear whether competitive dynamics will allow this to happen, expectations for a decline in ARPU (average revenue per user) seem misplaced, according to one analyst. However, the high capital costs and deployment costs of fiber optic projects, coupled with deployment in less dense markets or markets with deep infrastructure, are bound to further reduce the return on investment for such fiber optic projects. One analyst warned: “The capital markets have sensed this dynamic long before the operators themselves, and they will divest. Of course, this is how the bubble bursts.”
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