Non-traditional operators grabbed the lion’s share of the FCC’s technology-neutral rural broadband fund in its first phase, where higher than expected competition from entrants signals a dynamic shift in efforts tackling the US digital divide.

Cableco Charter Communications won the highest number of locations as expected at just under 1.1 million, although it only secured US$1.1bn of the US$9.2bn in subsidies that were awarded. SpaceX won the second-highest amount of locations at nearly 643k, securing US$886m in funding in a further boost for its satellite LEO constellation.

Other big winners included rural electric cooperatives and fixed wireless operators, with MoffettNathanson analysts noting incumbents won less than 10% of locations.

The RDOF was sent up to incentivise broadband deployments across 5.4 million rural households with up to US$16bn in funding available. The 10-year scheme will replace the Connect America Fund (CAF II) in 2022.

The first phase focused on areas of the US without broadband, and will be followed by a second phase for regions with partial service. That will offer the US$6.8bn leftover from the first phase plus an additional US$4.4bn.

“Auction results released today show that bidders won funding to deploy high-speed broadband to over 5.2 million unserved homes and businesses, almost 99% of the locations available in the auction,” the FCC said 7 December.

“Moreover, 99.7% of these locations will be receiving broadband with speeds of at least 100/20 Mbps, with an overwhelming majority (over 85%) getting gigabit-speed broadband.”

The regulator said 180 of the 386 companies that qualified to bid were awarded contracts.

New rural champions

Non-traditional players will increasingly own telecoms infrastructure in 2021, researchers from Analysys Mason predict.

“There will be more structural separation in fixed networks, with many operators divesting fibre assets and with private equity investors piecing together wholesale FTTH networks,” the firm forecast.

“At the same time, web-scale companies will expand their investments in international data centre interconnect, including undersea cables. Finally, owners of passive infrastructure such as telecoms towers will be looking to move up the value chain, including into interconnect and edge computing.”

The group expects the telecoms sector will return to growth next year as worldwide service revenue for 2020 is expected to fall US$43bn, compared with 2019.

But while a third of that loss will be recouped in 2021, Analysys Mason believes revenue will not exceed 2019 levels again until 2023.

“Revenue from roaming, prepaid mobile and traditional business services was most severely hit during 2020, but will begin to recover in 2021 as economic activity, household income levels and travel patterns pick up again,” they said.

For SpaceX, the grants will give the front-running LEO broadband venture an added boost in the capex-heavy segment. Investors will be keen to see whether the group uses the funds to lower the price of its service in addition to increasing availability.

Currently in beta testing, analysts have estimated that SpaceX is subsidising more than US$2k of acquisition costs for each subscriber so that Starlink can charge US$499 – mostly because of antenna costs.

Winning RDOF bidders will receive their 10-years of subsidies in equal monthly instalments from when they become authorised to receive support, which New Street Research analyst Jonathan Chaplin expects in Q2 2021.

“Funding recipients will have six years to deploy broadband to winning locations,” Chaplin said.

“They must deploy to 40% of required locations in a state by the end of the third year, and an additional 20% by the end of the fourth and fifth years.”

Satellite TV threat

The RDOF auction is an opportunity for cable to further accelerate subscriber growth after an already largely successful year, Chaplin noted.

Despite winning less funding and locations than analysts had expected, the grants will empower Charter to deploy more services to regions that currently have no choice but to use satellite TV.

MoffettNathanson wrote: “Streaming video will be a viable substitute for satellite-delivered video in these locations, many of which are currently Dish Network (NASDAQ:DISH) and DirecTV strongholds.”

Recent Leichtman Research Group analysis shows the largest pay-TV providers in the US with about 95% of the market lost around 120k net video subscribers in Q3 2020, compared with a 945,000 loss for the corresponding period last year.

Satellite TV lost about 775k compared with around 1.14 million in Q3 2019, the top seven cablecos lost 375k (versus 410k) and telephone providers 5k (210k).

Meanwhile online TV services added 1.03 million subscribers in Q3 2020, compared with about 815,000 net adds for the same period in 2019.

Speculation that AT&T (NYSE:T) could soon sell DirecTV has been ramping up as declining satellite TV prospects push the debt-laden telco to the deal table amid mounting 5G costs.

The telco acquired the satellite broadcaster for US$48.5bn in 2015. US pay-TV revenues peaked that year at US$105bn, according to Digital TV Research, which forecasts them falling to US$56bn in 2025.

On 3 December 2020, AT&T’s WarnerMedia announced that all Warner Bros movies being released in 2021 will be available on its HBO Max streaming service at the same time for no extra charge.

Although WarnerMedia said the move is temporary because of the pandemic, analysts anticipate it becoming permanent as the cinema business was already struggling before COVID-19.

Meanwhile, Goldman Sachs has reportedly been helping AT&T find a DirecTV buyer from the private equity market, with talks said to be in an advanced stage.

Blank-check company Churchill Capital Corp IV and private equity firm TPG have submitted bids valuing DirecTV at more than US$15bn including debt, reported the Wall Street Journal citing sources.

Apollo Global Management has submitted a bid valuing the broadcaster at less than US$15bn, the report added.

AT&T has declined to comment on all speculation.

Rumours about merging DirecTV with Dish Network also persist, despite sizeable regulatory hurdles, as authorities might look more favourably upon a tie-up amid significant changes in the increasingly dynamic market.