Shentel’s investment thesis is to build FTTH in underserved markets: CFO Jim Volk

Shentel (Nasdaq: SHEN), officially known as Shenandoah Telecommunications Company, is one of the fastest-growing publicly-traded broadband businesses. It provides communication services through cable, fiber optic, and fixed wireless networks in the Mid-Atlantic region. At the end of its most recent quarter, the company served more than 296,000 households and commercial customers. 

The company, which operates a large regional network with more than 7,200 route miles of fiber and 220 macro cellular towers, expects revenue and adjusted OIBDA to grow 10% and 25% respectively in fiscal 2021.  

Excerpts from the interview:

Do you have any specific strategy to meet your long-term target for Glo Fiber?

One of our governing principles at Shentel is to provide the best internet product in terms of speed, reliability, and customer service in the markets that we serve. Glo Fiber is our fiber-to-the-home (FTTH) product that we launched in the fourth quarter of 2019. Our investment thesis is to build FTTH in tier 3 and 4 markets that lack a competitive broadband offering to the incumbent cable provider. 

We have had great success with the Glo Fiber expansion plan to-date, now reaching more than 60,000 passings with over 9,000 customers for a 15% penetration rate.  In the approximately 2,000 passings that we launched in the fourth quarter of 2019, we have over 30% penetration rate. Based on our performance to-date, we expect an average penetration rate of 38% so we have plenty of upside to grow in our existing markets. 

As we look to the future and as we announced in our last earnings call, our target for Glo Fiber passings is 450,000 over the next five years.  The upsizing of our target is a result of the great momentum that we have in securing franchise agreements with municipalities and the pace of our construction. We currently have over 300,000 passings under franchise agreements and have several additional markets that have met our investment criteria giving us the confidence and visibility that we will reach our target. We believe there is a “land grab” in being the first FTTH provider in tier 3 and 4 markets and expect our head-start in creating a platform based on our early successes will be pivotal in staying ahead of new competitors.

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Also Read: Shenandoah Telecommunications Q3 2021 Earnings Call Transcript

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After divesting the wireless business, do you see yourself at a disadvantageous position on the 5G front? 

The COVID-19 pandemic accelerated work and learn from home dynamics that we expect will be part of the new normal going forward.  Fast, reliable broadband is a necessity to meet customer demand. We believe fiber and cable networks will always have a speed and reliability advantage over wireless technologies. We are well-positioned to grow and win market share without a 5G offering.

What is your view on the future of fixed wireless service Beam Internet, in terms of penetration and service quality?  

We developed our business plan to offer fixed wireless service prior to the beginning of the pandemic. Our strategy was to extend our cable and fiber networks into the less dense areas of our markets where it was uneconomical to build cable or fiber to the home. We launched the service offering broadband speeds of up to 100 megabits per second in the fourth quarter of 2020 and now pass approximately 24,000 homes with 1,200 customers representing a penetration rate of 5%. 

In 2021, Congress passed the America Rescue Plan Act providing over $1.3 billion in funding for broadband expansion to the states in which we operate.  This funding targets the same unserved markets that our Beam product was designed to serve.  In November 2021, Congress passed the Infrastructure Investment and Jobs Act that will provide an additional $42 billion in funding for broadband expansion to unserved markets across the country.

With the influx of government grants now available to subsidize FTTH construction, we decided to pause the expansion of our Beam fixed wireless network as it is not designed to compete against the faster broadband services offered by fiber networks. We are selling Beam fixed wireless internet service in areas where it is available today and expect to continue to grow our customer base. Our Beam customers are very happy with our service as reflected by an industry-leading churn rate of 0.42% in the third quarter of 2021.

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What should investors expect from Shentel over the next two years?

We are very focused on our fiber-first strategy to further the expansion of our broadband networks and anticipate making investments of approximately $500 million over the next five years.  We believe our proven platform of selecting attractive markets in which we invest, securing franchise agreements, constructing cost-effective FTTH networks, and winning market share with fair pricing, local customer service, and superior symmetrical broadband will be a winning formula and create shareholder value over the next several years. For investors looking for exposure to FTTH, one of the fastest growing areas in telecommunications, we feel Shentel would be a great investment choice.