Jeff Johnston: Hello there and welcome to the All Day Digital podcast, a CoBank Knowledge Exchange monthly audio program, where we connect with communications executives and thought leaders and get their perspective on what’s shaping the industry. I am your host Jeff Johnston. The opportunities and challenges for rural broadband is a hot topic right now. On today's episode, we get to hear from Bill Baker, founder and CEO of Nextlink Internet, a rural focused communications company. Bill founded Nextlink eight years ago, and has grown it to over 700 employees servicing over 70,000 customers. Suffice to say, I was excited to get some time with Bill to talk about everything from mergers and acquisitions, the sky-high valuations in the market, the LEO satellite threat, government funding, and so on. Without any further ado, pitter patter, let's hear what Bill has to say.
Bill Baker, welcome to the podcast. It's a pleasure to have you here with us today.
Bill Baker: Hey, great to be here.
Jeff: Great. Hey, we got a lot of things to cover here as we think about the forces that are shaping the broadband industry. Five years ago rural broadband didn't maybe seem as sexy as it is today. There just seems to be all sorts of interest from a regulatory standpoint, from a capital standpoint, from a technology standpoint. I would just love to get your thoughts maybe as you think about the last five years, so to where we were then and where we are now, and what are some of those dynamics that played out.
Bill: Sure. We founded Nextlink, nine years ago. Certainly, we've seen some radical change over that time period, but when we started the business, rural broadband was a little bit of a sleepy business. Lots of people wanted decent internet service without a doubt, but you certainly did not have the kind of streaming video dynamics five, seven, nine years ago that have just slowly built up over time.
When you really go back five years ago, that's really when it started building, when you had Netflix become a thing that most people wanted to have and then you had all of the other streaming platforms come on. You've also had very much an explosion in gaming where people don't really play a game on a platform with folks in the house anymore. People log in and they're playing an online multiplayer game and that is the common approach to gaming these days. That one person out in the countryside by themselves can literally go online and play real time with hundreds, thousands of people. We've seen that progression in the consumer usage levels as a result of these technology options that they have and with that, the demand has changed radically.
Jeff: That's interesting. Then here we are with the last 18 months, obviously the pandemic has upended things and I think brought into light how vulnerable those who are living in rural America are, who do not have broadband access. I'd love to get your thoughts on maybe how that's changed things as well.
Bill: Not only was it a speed that all of a sudden became critically important as everyone in the house in a family environment, the kids are trying to go to school, the parents could be working remotely, so not only do you have this explosion in demand, you also have a very strict requirement for quality that didn't exist before. You had a big shakeout where a lot of folks changed service providers, where they thought they had an adequate plan before, but all of a sudden now, they're working from home and they find out their VPN connection won't hold and it's kicking them offline at work all the time because their latency’s so bad. You not only saw a flight to speed to handle a truly multi-user environment at home a much larger portion of the time, but you also saw movement to quality, as well, to providers that have better latency.
Jeff: I think in response to a lot of this, we've got this talk of an infrastructure bill out of Washington and there being $65 billion potentially, depending on if they get things figured out going at this problem. Do you think it's enough? Is it sufficient? Is it going about it the right way?
Bill: Well, it all depends. The question, "Is that enough?" It all depends on what are they going to require that it be used for. If it's a 100% fiber, then it's nowhere near enough to address the rural underserved areas of the country. It's nowhere near half of enough of what's needed. That's where the technology requirement, the speed dynamics that they're going to require, that's going to really go to how far and how many people get covered with this future spending in the current infrastructure bill.
We just need to see where the regulators are going to end up on that. Certainly, we see the White House is very much pro-fiber and I completely agree. We're a hybrid provider. We do fiber and fixed wireless, and fiber is going to be able to give you symmetrical gig. The reality of it is, there's not many homes that need symmetrical gig to meet their needs.
Jeff: Yes, that's a thing. That's a really important point. You need a good solid internet connection. You need decent speed, but you don't necessarily need any close to a gig. That actually, that's a good segue into the next area I wanted to talk about, which is the dynamics of fixed wireless versus fiber. As you mentioned, fiber is really the gold standard. Sometimes fixed wireless is the better solution.
Maybe just get your thoughts first off from a spectrum standpoint, thoughts on CBRS as it relates to fixed wireless and where that makes sense and does it make sense. What's going to happen in the six gigahertz band, how do you think that could potentially play a role in some of these more sparsely populated areas?
Bill: Well, that's a great question because certainly when you look at CBRS at 3.5 and even the upcoming 2.5 auction, those are frequencies that have non-line of sight, near line of sight performance through trees, which in the wireless world is pretty important. Not everybody is out in the middle of a prairie. Those frequencies certainly have a tremendous application in more treed environments. They're not going to get you a gig service, but you can certainly-- We were one of the largest investors in CBRS when the FCC ran the auction across the Midwest United States. We've already uploaded in 2021 dozens of towers and have over a thousand subscribers on CBRS and rural environments, and easily deliver hundred Mbps download speeds. We find it to be a great tool in the toolkit.
I think, as we move forward and look at higher speed deliveries, certainly the FCC finalizing the usage rules around the AFC and access to six gigahertz, that's going to enable dramatically higher speeds especially in rural areas. We really look forward to the FCC finalizing those rules and really any fixed wireless provider out there who's utilizing five gig today is almost universally going to need to forklift and move into six gigahertz. The capability of that equipment at a relatively similar price point, it's just going to be radically higher.
I think that just goes to, if you're a fixed wireless provider in the marketplace today, you've got some major decisions to make over the next 12 months because with the rollout of CBRS, with the upcoming rollout of six gigahertz, if you're operating on five gigahertz, someone is going to overbuild you with a fresh, much better performing technology in a different frequency.
Jeff: That's a great point. On CBRS licensed versus unlicensed. Obviously, licensed is the best, I would imagine. What are your thoughts there? Where does it make sense maybe to do unlicensed versus licensed?
Bill: It just comes down to there's a certain amount of frequency. Some of it is licensed, some of it's available for first come, first serve. That's where you get down to the issue of just common sense. If you're trying to go into an urban marketplace of moderate population, almost certainly your licensed users in that county are using their frequency, that's why they bought it. You probably have a much greater likelihood of unlicensed users already existing in an urban environment. So the question is, you may be able to get some frequency allocated to you, but the question is how much, depending on who's already there.
Now, turn that on the other side of the coin. If you move out into the rural environment and the countryside, other county, that's where you're probably going to have relatively unfettered access to unlicensed frequency. Because there's just not going to be that many users out there in a rural environment. There's a big difference between wanting to provide service and being obligated to provide service. That's what drove our investment in the frequency, was we couldn't have a 90% comfort level. We were going to get the use of the frequency that we needed. We needed 100%. That's why we made the investment.
Now, it has opened up the doors for us to operate and provide fixed wireless in urban environments. With CBRS using license frequency, a great example is in Bryan College Station, a relatively populated, a Texas A&M University town. We've gone into that market just recently with CBRS using our licensed frequency where we'll be able to provide unfettered 100 Mbps download speeds to that entire community. This goes back to fiber versus wireless. That town's been announced as a by a fiber company to be built out with fiber. It will take them over two years to do that. They probably won't even do 100% of the town. They'll do- there's going to be 10%. That's just economically crazy to do and they won't do it because it's not an obligation, it's an economic investment.
Versus for us, we rolled out pervasive 100 Mbps fixed wireless service using licensed frequency in that community in 60 days. That goes to the heart of fixed wireless versus fiber. It's not just economics, it's also time to market and the time it takes to roll out.
Jeff: Back to a comment you made on six gigahertz. Maybe we don't have the answer to this yet, but I just love to get your thoughts on what do you think the throughput speeds, all things being equal, I guess, on six gigahertz versus millimeter wave spectrum?
Bill: We have equipment from Cambium today. We are on alpha tester for them in our testbed and we are getting a gig down at just over two miles. We're very comfortable that we're going to have a two-mile line of site performance with a gig down 500 Mbps up. Then you get to, well, okay, what about three miles, four miles, five miles? You're going to be able to get 100 Mbps performance on that equipment well beyond five miles. You've got a tremendous propagation with that gear.
Jeff: Let's move on, talk a little bit about industry consolidation. M&A, as I think I mentioned earlier, I think there's been just a flood of money coming into this market. At a high level, where do you think we are right now in this space and maybe, what is this going to look like over the next few years? Is it just a continuation of what we've been seeing, or any kind of thoughts there?
Bill: Well, M&A in the broadband market right now is very much a barbell. If you're in the fiber end of the market, it is white hot on the M&A front and a tremendous amount of private equity capital flowing into the marketplace, looking for platforms, looking for scale through acquisition. The fixed wireless end of the market is a little bit of a different story. That's where you've got a lot of rural operators who have been in the business for a long time. The M&A market's been pretty soft for a while, and so for a lot of folks, it's more a matter of looking at where the industry is going and determining whether or not they want to make the kind of investments they need to upgrade their platform and upgrade their network. If they don't, they're probably a seller. Otherwise, they're going to be overbuilt and someone's just going to slowly pull all their subscribers away.
The multiples that you see for fiber deals versus fixed wireless deals are literally radically different. You've seen some really crazy multiples for some fiber platforms out there 15 to 20 times EBITDA. Conversely, you see fixed wireless is generally sub five times EBITDA.
Jeff: Then what about some of the copper networks that are out there? We've seen some pretty significant deals here recently with Lumen jettisoning a good bit of their copper network. How do you think about that? Do you think that it- are we going to see more M&A on some of these older networks as investors look to upgrade these networks or is it going to be more of company investment to replace their older copper networks?
Bill: For folks with the copper, some of the legacy telephone, legacy cable guys, that's a tough, tough question and they're in a tough spot because very much the market's moving to fiber now. You keep hearing about DOCSIS 4.0 is going to come out and that's going to enable gig speeds. Honestly, when you go look at those companies that have fiber, they're honestly predominantly selling 100, 200, 300 Mbps plans. Because once a consumer has the speed they need that meets their needs in the household, a gig it's sexy, but why am I going to pay 40 or 50 bucks a month more for sexy? Especially when you move in the rural environment where people are a little bit more economically sensitive.
I think the big question for the copper guys is, are you going to try and invest in that DOCSIS 4.0 technology to move your plant to the next level? Are you just going to call a spade a spade and go, this copper has got a limited life and really the answer is to fiber it up. This is just my observation. I don't have any copper plant myself so I haven't had to deal with that decision yet.
Jeff: Lucky you. [chuckles]
Bill: I don't see very many copper operators at this point making upgrades. I just don't see it happening much in the market. You're seeing them basically let the market play out. They're either deciding to overbuild themselves with fiber or they're just running out their copper plant for as long as they can before someone else comes in and overbuilds them. A lot of those big copper guys that are out there in the marketplace still, they don't have the capital to go into every single market that exist and overbuild themselves with fiber.
Jeff: Yes, you're right. That is a tough strategic position that they're in.
Bill: Right. That's where you see, honestly, a lot of these private equity-backed fiber companies are jumping into these copper markets that have mediocre performance and they're overbuilding them with fiber. You're going to see a big shakeout in the next five years with some of these large national legacy telcos that used to have a very large subscriber base, they are going to fritter away as they just start getting overbuilt with fiber.
Jeff: Well, I'd be remiss if I didn't bring up LEO satellites with you, because that certainly is garnering all sorts of attention. I guess when you've got two of the richest people in the world throwing money at a new technology, we've got to pay attention to it. There's arguments on both sides but what do you think? Maybe what do you need to see or what questions do you need to have answered?
Bill: Well, certainly, the one getting all the press these days is Starlink, given they're providing service. While it's far from perfect today in performance, hey, I've driven a Tesla for eight years, so I am a believer in Elon Musk's ability to improve this product on the fly. I'm not a doubter from that standpoint, but you do have to look at the inherent. Every technology has got its pros and cons. As we talk about six gigahertz and being a line of sight, which is the con or one of the cons of six gigahertz, that's the same thing for LEO performance as well. Those satellites, they don't shoot through trees.
One of the dynamics is as Starlink lowered the altitude of its constellation and brought the satellites closer to earth in order to improve their latency and to improve throughput and speed, one of the dynamics that they created when they did that was you're connecting to their satellites lower on the horizon than when they're at the higher altitude, which means trees are becoming a bigger and bigger problem as that satellite needs to tilt lower. It creates a challenge for the consumer using Starlink through, they got to get their dish higher or they get out of chainsaw.
Now, when you talk about where it's going to work better than terrestrial fixed wireless, I think that's where Starlink is, at least today, a competitive disadvantage in terms of its quality of service as well as the price of the service. You've got an economically sensitive consumer out in the rural area and you look at the Starlink dynamic and you go, "Okay. Guys, it's going to give you decent service but it's going to cost you $500 up front and it's going to cost you $100 a month. By the way, you got to install it yourself," which means a lot of these folks are going to have to go hire somebody to install this at their home so it's not just $500 to get it installed.
I think when you look at those dynamics combined and somebody goes, "Well, hold on. I can get 50 or 75 Mbps from a fixed wireless terrestrial based provider, cheaper, much lower install, professional install done." I think that's where there's still fixed wireless on the ground as a tremendous operating advantage over the 800-pound gorilla of the LEO space which is Starlink. I think we still need to see OneWeb come to market and see what their product can really do and how they're going to price it.
Today, we certainly experienced on our side a very distinct demand drop off when you get the price above 90 bucks. You're going to charge for rural broadband, it very much drops off a cliff at $90. If you've got product price points, whether it's 25 Mbps, 50 Mbps, 75, 100 Mbps if you've got product price points that meets people's needs in their household. Not every household has two parents and four kids. You meet a household's needs, they're going probably not spend a whole lot more than they need on broadband. If they can do that for $49, or $59, or $69, they're not going to spend a $100 on Starlink.
Jeff: Makes sense. Great. I want to finish up here by asking you look in your crystal ball because you certainly been around a while and you've seen a lot of things evolve. Where do you see things three to five years from now in this industry?
Bill: I think definitely the big change that's coming is the impact of the infrastructure bill. You can't pour billions and billions of dollars into the broadband provider marketplace without having some radical impact on delivery, especially in areas that are very poorly served today. I think ultimately the rules that they set for how those funds, what technologies are allowed to be used for those funds, what speeds are required to be used for those funds, is going to go a long way in dictating the outcome of the broadband marketplace, and in particular the rural broadband marketplace where those funds are going to be spent. You get into the other dynamic in that program that could turn this into the wild, wild West, because historically those funds overwhelmingly were dispersed through the FCC, and right now the indication is they're going to be doled out predominantly at the state level much like the ARPA funds. Guidelines will be given, but a lot of the details will be left up to the individual states as to how they disburse those funds.
It'll be very interesting to see how each state approaches the marketplace. Because I can tell you today, states have very different perspectives on how to dole out money into the rural broadband marketplace. Some of them are exclusively fiber-centric, and if it's not fiber they don't really want to spend it. Ultimately, what they end up doing is taking what's relatively a small amount of money and disbursing it in an extremely small area of need because fiber dollars are not going to go very far.
Versus other states look at that and they're somewhat technology-neutral, and so they're impacting a much broader area because they're doing some fiber projects, they're also doing some fixed wireless projects. Then you've got some other states that look at some of the elements of, well, is there an existing CAF II obligation in this market? Is there an existing RDOF obligation, and how do they deal with those? There's just so many wildcards at play. I think at the end of the day, one thing is definitive, and that is, rural broadband in five years is going to be in a hell of a lot better place than it is today.
Jeff: Great. Well, I could go on forever but I know you have a business to run so I don't want to keep you too long, but any closing thoughts or closing remarks at all that I didn't cover with you here today?
Bill: I think the one thing that I'd like to say is, at least from Nextlink's perspective and my personal perspective, we love working in the rural broadband space. Sometimes people ask me this business versus a different kind of business. I'm like, we are in the business, in some respects like healthcare, we change people's lives. When you go around in a community we serve and people walk up to you and say, "Man, I used to have to drive to town to do my homework." People are now able to work from home because they took our service. There is an immense amount of pride that goes throughout our organization at every level about what we're able to do and how we're able to positively impact people's lives.
You hear it a lot but it's a digital world out there. If you're trying to live in it with really bad internet service, it's tough. It is really tough. I think that's what I take pride in most about how we've been able to impact lives at Nextlink.
Jeff: No doubt you're making a profound impact on rural America so that's a beautiful thing for sure because it needs it. Listen Bill, this has been just fantastic. I can't tell you how much I appreciate you spending some time with us today so thank you so much for that. This was incredibly enlightening and I certainly enjoyed it, so thank you very much.
Bill: I appreciate it. Love being here, Jeff.
Jeff: Wow. I could have talked to Bill for hours. He has such a deep understanding of what's happening in the rural communications market. I think what stood out for me most is the sheer amount of attention the rural broadband market is getting. The money coming out of Washington combined with the billions in private capital that has been raised is unprecedented. COVID-19 exposed how vulnerable rural Americans are who do not have access to a reliable broadband connection. It's great to see the efforts being put in place to address this. I also think it's important to recognize that fixed wireless can and is playing an important role in lighting up high cost, sparsely populated markets. The combination of the CBRS spectrum band and the six gigahertz band should enable operators to build high-speed, high-quality fixed wireless networks in rural America. Hey, thanks for joining us today and please watch out for the next episode.
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