Shenandoah Telecom Co Bank of America 2026 Media,Communications & Entertainment Conference
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Thank you all for coming out. I'm Mike Funk from Bank of America. I lead the North American Telecom Data Center and Tower Research team here at the bank. I'm really grateful to have Ed McKay from Shenandoah here again with us. Thank you, Ed, for coming out.
Thanks, Mike. Glad to be here. Always good to be in the city. Certainly a little bit of a change of pace from the Shenandoah Valley, Virginia, but glad to be here. Thanks for the invitation. Yeah.
We love to have you, so thank you again for that. I wanted to start really high level in something that's I think of interest and topical for the entire telecom ecosystem and that's SpaceX and Starlink. Starlink has already been in the market with broadband for a while. They've been relatively successful, but with plans to launch the V3 satellites. I think internally we're projecting something like 20,000 V3 by 2030. Their capacity is obviously going to expand materially, potentially allowing them to address a much larger market. Our research, we show the U.S. is about 20% rural. Depending on the definition. I believe that is the most natural addressable market for Starlink broadband, given that it's a shared service.
Now, I realize not all your markets are rural or fit that definition, but where you operate and where you build is more kind of semi-suburban rural relative to, say, a New York City or a Los Angeles. Very long intro to get to a short question, which is, how do you think about the competitive threat, and how, if any way, does it change your plans or your strategy?
To date, we've seen minimal impact from Starlink. The only place where we've really seen any impact at all is in our very rural markets. When we look at our fiber to the home markets, virtually no impact from Starlink. Even in our incumbent cable markets that are more dense, very little impact. It's only these very rural areas where we've seen an impact. We believe we have a superior product. We can offer higher speeds, better latency, and we think customer service differentiates us as well. We're certainly keeping an eye on that. In some of our rural markets, we have changed our pricing plans to make them more competitive. Right now, in our rural markets, customers can get twice the speed for a lower price than they can get with Starlink. We have reacted. We've seen churn come down.
Really, the peak churn we saw in these rural areas was in the first quarter. At that point in time, they were giving away free equipment, had heavily discounted promotional rates. Since then, we've seen the churn levels come down. Part of that is they stopped the free equipment promotion, but also I think our new rate plans have helped to decrease churn as well.
Okay. What do you find most compelling to customers? Is it price? Is it the speed difference? Is it emphasizing reliability? What resonates most with your customers as you're doing your internal market research?
In the rural areas, we have some challenging demographics. It's more about price there. When you look at our Glo Fiber markets, which is now the vast majority of our passings, it's more about speed, low latency, reliable service. We think there'll be less of an impact from satellites in those fiber-to-the-home markets.
And then as you move towards the end, or you progress in the Glo Fiber construction phase, and I guess presumably greater focus on customer growth and cash generation, how do your operating priorities or focus change?
Sure. Well, we think we've built a very unique network. We've invested over $600 million building out our fiber to the prem network.
We first launched it in 2019. Now is the time to fill up that network. So we are focused on driving data penetration in those markets. Current penetration rates about 21% on average. We're projecting 37% penetration sort of midterm, 5-7 years after we launch a market. So we believe we have significant upside from organic growth in the Glo Fiber markets. So driving penetration there is the biggest priority. We're also driving growth in our commercial fiber business. We now have almost 20,000 route miles of fiber stretching from Chicago all the way to the Washington, D.C. area. We're serving enterprise mid-market customers. We're seeing growth in our wholesale and our carrier business as well. Also, we see an additional opportunity for data center connectivity in our markets. Then I'd say the third priority would be keeping our expenses under control and operating efficiently.
As we're driving top-line revenue from the growth in Glo Fiber and our commercial fiber business, our focus is on keeping our operating expenses constant so we can see some EBITDA margin expansion. So those are what I keep emphasizing with the team in the coming year.
I want to come back to the expense side and even the data center connectivity market opportunity. I thought I'd want to stay focused on Glo Fiber here for a second. As you think about the return on investment, right, for fiber, I think generally ballpark people say greater than 20% penetration is what you want to get to get to an adequate return. You're targeting 37%, but the other factors are obviously going to be price and then churn. Based on what you know now and your projections, where do you expect your return to go over time on the investment you've made? I guess what are the levers or variables that you're watching most closely for any risk to that return target?
When we build our business case for a Glo Fiber market, we have a 15% IRR- Yeah threshold, and that's an unlevered IRR.
We're well on our way to hitting that target with our penetration curve. We monitor our growth curve carefully. Since we launched in 2019, we have a predictable growth curve that our cohorts typically follow.
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