TDS Telecom says it’s on track to equip 150K locations with fiber in 2025
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· TDS Telecom increases spending to support fiber expansion opportunities
TDS Telecom maintains its fiber expansion targets for 2025.
Speaking to investors during TDS Telecom's first-quarter earnings call, Kris Bothfeld, VP of finance and CFO, said the company is on track to enable over 100,000 locations with fiber.
This expansion will come in two primary segments--its fiber expansion markets and those leveraging the FCC's Enhanced Connect America program (E-ACAM) program.
“We expect both capex and service address delivery to ramp throughout the rest of the year, as we are still targeting to deliver 150,000 new fiber addresses in 2025,” Bothfeld said.
While TDS Telecom is firmly committed to its fiber broadband expansion, environmental issues impacted first-quarter subscriber additions.
TDS Telecom added only 8,300 new fiber subscribers during the quarter, down from earlier quarters. However, it did increase its reach for more homes and businesses.
“The addresses we launched this quarter, 14,000, were significantly lower than prior quarters,” Bothfeld said. “That was largely because of the cold weather and our markets largely being in the Pacific, the Pacific Northwest, and Wisconsin, and because of our pre-sales model, we see the most net adds come from those initial fiber launches.”
Raising penetration focus
As TDS Telecom expands its fiber broadband base, it focuses on driving increased penetration.
Overall, TDS Telecom is targeting 1.8 million marketable fiber service addresses. It ended the quarter at 942,000.
The service provider’s fiber strategy is focused on enabling it to tackle the telecom industry-wide competitive pressures from other fiber competitors and fixed wireless access, as it faces its copper and cable markets.
Overall, TDS targets 80% of the total addresses to be served by fiber, ending the quarter at 52%. Within those new markets, telco expects to offer 1 Gbps or higher speeds to at least 95% of its footprint. At the end of the quarter, gigabit speeds were available in 74% of its markets.
Bothfeld said TDS “will use a combination of fiber and coax technologies to achieve this goal, adding that its goal is to reduce the number of addresses served by copper to just 5% over time.”
TDS Telecom is seeing positive penetration in its fiber expansion markets. “In our fiber expansion markets, we have a solid track record of achieving 25% to 30% residential broadband penetration in year one, attributed to the success of our pre-sales model,” Bothfeld said. “We ultimately expect to reach 40% average penetration in steady state, roughly five years after launch. Several of our mature markets have exceeded this goal.”
Likewise, the service provider forecasts similar penetration rates in its Enhanced Alternative Connect America Cost Model (Enhanced A-CAM) markets.
“In our E-ACAM markets, we expect even higher penetration, 65% to 75% in steady state, as we will be the only gig-capable provider in these areas,” Bothfeld said. “We are excited to bring gig speeds to some of the most rural geographies in our footprint.”
As TDS Telecom expands fiber broadband into new markets, it is seeing greater adoption of its higher-speed offerings, particularly 100 Mbps and 1 Gbps.
“We see increased demand for higher broadband speeds, with 82% of our residential broadband customers taking 100 Mbps or higher and 24% taking 1 Gbps or higher at the end of the quarter,” Bothfeld said.
Likewise, the telco sees that the new customers it added in the quarter also adopt 1 Gbps services. “When we looked at new customers we added in the quarter, 56% took speeds of 1 gig or higher,” Bothfeld said. “Demand for faster speeds remains strong.”
What is Enhanced ACAM?
The FCC’s Enhanced Alternative Connect America Cost Model (Enhanced ACAM) program will distribute nearly $18.2 billion over 15 years to carriers to deploy broadband service with speeds of at least 100/20 Mbps to more than 700,000 locations, and to improve or maintain 100/20 Mbps broadband service at approximately 2 million locations, in 44 states. Enhanced ACAM provides additional support to carriers participating in other Connect America Fund (CAF) programs to bring faster broadband to more locations, including locations in some of the most difficult-to-reach areas of the country. In all, 368 carriers accepted FCC offers to transition to Enhanced ACAM from the Alternative Connect America Cost Model (ACAM), Revised Alternative Connect America Cost Model (Revised ACAM), Alternative Connect America Cost Model II (ACAM II) and Connect America Fund Broadband Loop Support (CAF BLS) programs.
Leveraging Enhanced A-CAM
Participating in the FCC’s Enhanced A-CAM program is a key initiative of TDS Telecom's rural fiber network rollout.
E-ACAM provides financial support to carriers for deploying and supporting 100/20 Mbps or faster broadband service in underserved areas. TDS uses E-ACAM funding to deploy network upgrades, including fiber expansions, to improve broadband access in rural areas.
Wisconsin is the first TDS Telecom territory market to use E-ACAM. Over 80 percent of TDS Telecom’s full-year capex will be dedicated to fiber, mainly through investments in expansion and the E-ACAM programs.
“In preparation for the enhanced ACAM program, we executed several construction contracts with third-party vendors and have begun construction in our first E-ACAM market in Wisconsin,” Bothfeld said. “The teams are excited to begin this program, which will bring fiber deeper into these communities.”
Near-term challenges
As TDS Telecom continues to sharpen its broadband focus, the service provider saw a dip in revenue in the first quarter due to declining wholesale and business revenues and divesting non-core assets.
For the quarter, TDS Telecom’s revenue was down 3% to $257 million due to declines in wholesale and business services revenue, which were down 6% and 12%, respectively, to $35 million and $39 million.
In the first quarter, the service provider sold two of its wireline operating companies, Colorado phone company, to Eastern Slope Rural Telephone Association and TDS’ Delta County operations to Elevate. The divestitures contributed $4 million of operating revenues to TDS.
Bothfeld said that to reduce its reliance on copper, TDS Telecom continues to search for opportunities to divest markets where it can’t make a business case for upgrading them to fiber.
“A lot of these markets are overbuilt markets, so they were not eligible for E-ACAM, and given the density of these markets, it just was not economic to upgrade these areas,” she said. “So that, from a strategic lens, that is exactly what we're looking for: these markets that are more isolated, do not have an economic path to fiber.”
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Sean Buckley
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