Shenandoah Telecommunications (NASDAQ:SHEN) is nearing the end of a multiyear fiber construction program and expects to return to positive free cash flow next year as capital spending declines, according to Chief Financial Officer Jim Volk.
Speaking at a KeyBanc communications services presentation, Volk outlined the company’s three business lines: Glo Fiber residential fiber service, commercial fiber, and its legacy cable operation. He said Glo Fiber represented about 28% of revenue and grew 33% year over year in the second quarter, while commercial fiber accounted for about 23% of revenue and increased 9%.
Glo Fiber growth strategy
Volk said Shentel’s Glo Fiber strategy has focused on technology and local customer service rather than leading with low prices. In 88% of its markets, Glo Fiber competes primarily against a cable provider, he said.
The company promotes fiber’s faster speeds, symmetrical upload and download capabilities, and network resiliency. Volk said 80% of Glo Fiber gross additions are purchasing gigabit service or higher, including 20% selecting service tiers between 2 gigabits and 8 gigabits.
“Our playbook now for seven years … has been to not lead with price, but lead with technology and the local customer service where we can differentiate ourselves,” Volk said.
Shentel’s Glo Fiber churn has averaged about 1% per month on an annual basis over the past seven years, according to Volk. He added that the business has maintained a Net Promoter Score in the 60% range for the past two years, compared with low-single-digit or negative scores that he said are common among cable operators.
Door-to-door sales have become the largest Glo Fiber acquisition channel, accounting for roughly 35% to 40% of gross additions following increased investment. Online sales represent about 25% of gross additions, retail stores about 20%, and call centers about 15%, he said. Shentel estimates commissions of approximately $50 to $60 per gross addition and advertising spending of about $250 per gross addition.
Cable business targets underserved areas
Shentel has owned its cable business for more than 20 years and separates the operation into denser competitive markets, grant-supported expansion areas, and rural markets where it is the only broadband provider.
In competitive cable markets, the company has implemented a more competitive rate card and has held or improved its unit market share, though it has given up some average revenue per user, Volk said. The company has also nearly completed construction of about 25,000 passings supported primarily by government grants covering roughly half of the build cost.
In those grant-funded areas, Shentel’s penetration rate is about 40% after two years, and Volk said the company expects it to reach about 65% during the next couple of years.
In lower-income rural areas without another broadband provider, Shentel has sought to better align its offerings with local demographics. In March, it reduced the price of its entry-level 200-megabit service from $65 to $50, with a $10 promotional discount that brings the first-year price to $40.
The changes have produced more gross additions, including at the $40 entry tier, while avoiding significant repricing of the existing customer base, Volk said. However, he cautioned that the program is still early. The company expects cable average revenue per user to decline about 1% annually over the next couple of years as it works through pricing and product changes.
Starlink impact and commercial opportunities
Volk said Starlink has had little effect on Glo Fiber or on Shentel’s more competitive cable markets. The company saw some impact during the first half in very rural, lower-income areas, particularly when Starlink increased promotions during the first quarter.
He characterized satellite broadband as a niche offering for areas that are difficult to serve and said fiber and hybrid fiber-coaxial networks should retain a speed advantage. Shentel also believes its local customer-service model provides differentiation, Volk said.
On the commercial side, recent growth was driven largely by carrier business and E-Rate sales, which support K-12 connectivity. Longer term, Shentel sees an opportunity to connect data centers being developed near its commercial fiber routes, particularly around Columbus, Ohio.
Volk said the company has been quoting projects that could connect recently started data centers within 12 to 18 months, but it has not yet secured its first data-center contract. The company is emphasizing capital-light opportunities where 75% to 80% of route miles are already on-net, with new construction concentrated on endpoint connections.
Capital spending and margin outlook
Shentel expects 2026 to be the final year of its elevated Glo Fiber build. The company expects residential capital intensity to fall to about 25% of revenue next year, while commercial capital intensity is expected to be about 25% to 30%. Consolidated capital intensity should decline below 30%, positioning the company to generate positive free cash flow, Volk said.
As construction winds down, Shentel announced in February a workforce reduction of about 10%, or roughly 100 employees, primarily in fiber construction and engineering roles. Volk also said the company is pursuing productivity initiatives involving artificial intelligence and more competitive vendor bidding, each of which could produce more than $1 million in annual savings next year if successful.
Looking ahead, Volk said Shentel is targeting low-double-digit annual EBITDA growth over the next several years, supported by approximately 4% to 5% revenue growth. The company expects EBITDA margin to expand from 34% by 300 to 400 basis points annually over the next couple of years, moving above 40%.
About Shenandoah Telecommunications (NASDAQ:SHEN)
Shenandoah Telecommunications Company operates as a diversified communications provider offering both wireless and wireline services across rural markets in the Mid-Atlantic region. Headquartered in Edinburg, Virginia, the company designs, builds and maintains network infrastructure to deliver mobile connectivity, high-speed broadband access and related telecommunications solutions to residential, business and wholesale customers.
In its wireless segment, the company owns and operates a portfolio of cellular towers and associated spectrum under a long-term partnership with a national carrier.
