Rural Communications Companies Well-Positioned for Broadband Market Investments

DENVER (March 24, 2022)—Independently-owned communications companies are positioned to benefit from infrastructure funds and private equity sponsors’ increasing interest in private operators. Private communications companies, which operate mostly in rural markets and tier three cities, are seeing an abundance of strategic investors willing to provide capital for broadband upgrades or outright buyers willing to pay a premium for their business.

The market valuation gap between private and public communications companies is as wide as it’s ever been. While valuations of privately owned operators have remained consistently strong, stocks of publicly traded cable companies recently traded at their 52-week lows. And the sizable gap in valuations is likely to persist for the foreseeable future, according to a new report from CoBank’s Knowledge Exchange.

“There’s always been a valuation gap between public cable companies and private communication operators that offer internet, cable and phone services,” said Jeff Johnston, lead communications economist with CoBank. “But the current gap is the biggest we’ve ever seen. It’s a market environment that puts many independently owned rural providers in the catbird seat when it comes to negotiating terms for strategic partnerships or outright sale.”

Based on recent transactions, earnings before interest, taxes, depreciation and amortization (EBITDA) valuations for private communications companies are more than two times higher than the average valuation for the main publicly traded cable companies. 

Public cable companies are facing several headwinds that are applying downward pressure on their valuations. Equity markets have been under tremendous pressure over the last several months given the rise in inflation and interest rates, a less accommodating Federal Reserve and the Russia/Ukraine war, among other factors. Public equity markets tend to react to market shocks more quickly and with much higher volatility than private markets where investors typically have a longer time horizon. 

Another factor suppressing public cable valuations is increasing competition for broadband services from major telecommunications companies. AT&T and Verizon are making significant fiber investments to overbuild their legacy DSL networks, positioning themselves to become more formidable competitors and ultimately take broadband market share from the cable operators.

Verizon and T-Mobile are also aggressively deploying fixed wireless access (FWA) as an alternative to fixed-line broadband. Opinions vary on how disruptive FWA will be to the cable operators, but public equity investors do not like uncertainty and FWA is making them nervous.

While the public companies battle headwinds, their privately owned counterparts serving rural markets are enjoying the tailwinds of less competition and a massive influx of federal funding allocated to help bridge the digital divide. 

The lack of competition for broadband services in rural areas gives operators more pricing power and better long term growth prospects, both of which are appealing to investors. And given the high-cost nature of serving rural markets, the government funding is fueling investor interest to buy and invest in rural broadband markets.

Read the report, Big Gap in Valuations Puts Private Companies in Broadband Catbird Seat.

About CoBank

CoBank is a $170 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 76,000 farmers, ranchers and other rural borrowers in 23 states around the country.

CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and maintains an international representative office in Singapore.