Jessica Fischer: Yes. So maybe I’ll try to help you with some numbers around network evolution and rural. I’m going to caveat it that we’re still working through our operating plan for next year. So, I’m not going to give a 2024 guide. But just to help you frame the issue. If you think about where our run rate for rural passings will be in Q4 to reach our 300,000, you have to have 110,000 passings in Q4, which we’re actually pretty confident that we will meet. If you take that run rate and sort of push it into four quarters of next year, we would build the 440,000 passing, which is 140,000 more rural patents than what we built this year. We’ve told you before, and it’s true that passings timing isn’t perfectly aligned with spend.
So it’s not a perfect guide. But if you put that at the net cost per passing, the $3,800 that we’ve talked about for RDOF, it would put the run rate next year on the order of $500 million higher than where we are inside of this year, assuming that all of the other components of line extensions remain the same, which there is a little variability there. But I think it’s a good way to think about the issue overall. I think you have to couple that on the other side, with an understanding that network evolution spend sort of like our rural construction, is front loaded. There’s a lot of costly preparation and inventory building work that needs to be done before you make it into the field to actually do the high slip or to replace equipment. We expect that we’re going to spend a little over $1 billion this year in 2023 on high split, which leaves a substantial a substantial amount of spend in the project and a large portion of which if we continue at our current pace would hit inside of next year.
So adjusting the timing of high split won’t be enough probably to fully offset the additional line extension spend, but it can help. And as Chris said, we are looking at it sort of in the context of a total package to say, what’s an appropriate amount of capital expense load to put against the business given where we sit. No, you’re right. I want to say one more thing about it, though. So as we think about all of this investment that we’re making in rural, I think it’s probably — we need to drive additional visibility around sort of the value that’s related to having sort of unique one-time capital investments like that. We’re taking a look at a lot of different ways we could think about that. We consider it a JV, but the returns are so strong.
I don’t think we want to share them. We’ve considered a tracking stock. I think structurally, it’s complicated, but it does sort of do what I’m thinking about and kind of trying to create focus on the spending on rural as really acquiring passing is more like M&A, instead of thinking about it the way that you would think about CapEx. Absent doing one of those things, I am looking at additional disclosures to create more transparency. And so I think you should look for us to be trying to bring some of those disclosures early next year. And the other way that you can think about it with what’s already been built, which I think is easier to sort of wrap your mind around as to what value has been created. Jonathan at New Street actually laid out a nice way to think about sort of what’s the value of overall passing once it’s built.
His number came in around $9,000. And I’m not going to argue with him because I think it’s a good space to think about it. So we built 315,000 rural passings so far. At $9,000 per passing, it’s around $2.8 billion. Our average net cost per passing on the subsidized rural build is around $3,800. So, you can assume something like $1.6 billion of capital has been spent against those completed passings. And what that means is that we’ve created value, the current value of the passings at $2.8 billion versus the $1.6 billion that we’ve spent. We’ve already created value of $1.8 billion or $1.2 billion related to the building of those passings. And as we continue to accelerate the pace of the build, the pace at which we add that value to our business will increase.
So we are looking at additional transparency there and trying to help as we sort of think about what our total capital spend might look like for next year, also making sure that we pair it with good disclosure and help from a valuation perspective so that you can see the value that those are adding to the business as we get them built.
Chris Winfrey: So Ben, you got probably more than you asked for. But Jessica was talking and I step back — if you step it up one level from that, I think it’s important just to reiterate that this company has a very strong focus on long-term capital allocation, long-term shareholder value creation. But we also understand the value of shareholder confidence along the way. And so we’re going to go outside of our comfort zone here before we finish our operating plan, try to provide some of that additional disclosure and transparency, and make sure that we’ve got the full buy-in of our shareholders along the way and demonstrate what we’ve always been, I think, is really good allocators of capital.
Ben Swinburne: Appreciate it. Thanks so much.
Stefan Anninger: Thanks, Ben. Luke, we’ll take our next question please.
Operator: Our next question will come from Vijay Jayant with Evercore. Your line is now open.
Vijay Jayant: Thanks. Two, if I could. Jessica, you previously talked about cost items, cost to serve and sales and marketing sort of exiting this year close to zero. Obviously, cost of services elevated in the quarter. Can you just talk about where we are on the cost cycle, given you should be comping against some of your labor cost increases? And sort of what it sort of means sort of into 2024? And then Chris, you started mentioned, I think now two quarters in a row, about the BEAD process and the state process and how that may sort of play out and you may not participate kind of thing. Can you sort of talk about really what are the issues there? And if that is the case, are we still too optimistic on your line extension spend over the next few years, which I think is about $4 billion a year?
Jessica Fischer: Yes. So Vijay, first on the cost items, I don’t have any change in my expectation relative to cost to serve in sales and marketing, exiting the year at close to zero. And I think we’ve talked in our remarks, and it is our expectation that as our — as the tenure in those areas mature, and as we — because now, as of the end of Q3, we’ve really lapped the one-time increase related to the investments that we made on the employee side.
Chris Winfrey: For sales and marketing.
Jessica Fischer: Well, as of the end of the quarter, I think you also lapped in cost to serve for the most part. And so the rate of increase — why I’d say that? So, we should expect to be more efficient across those areas going forward, whether that’s sort of every quarter mix. I’m not going to be specific about where we’ll be inside of next year and the quarters. But I do think our overall expectation is that from this point, we drive efficiency in those spaces.
Chris Winfrey: Vijay, on BEAD, you talked about pipeline, the BEAD has always been very difficult to forecast exactly what it will be because there’s state allocations now, but how much of that is near our footprint. We’re working through all of that. It’s going to take a long time for that. So, — and — but in the meantime, RDOF and the state grants, they’re going well. And there’s a very large pipeline, as we’ve talked about, absent BEAD. I think it’s fair to say that we were somewhat disappointed in the potential guidelines that came out from NTIA. And all I’m trying to say, without getting too much in the detail, NTIA states are all aware of the issues that we have. But to be clear, the states that adopt the NTIA’s proposed guidelines on things such as Internet tiers, dictating Internet tiers, dictating pricing, labor practices, those just won’t be attractive state for us to bid in.
