Strategic Advisory

Shining a Bright Spotlight on Dark Fiber

Traditionally, communications carriers deliver bandwidth, but in some cases, they’re willing to offer long-term leases on unused, physical fiber strands in their networks, commonly known as dark fiber.

Not too long ago, dark fiber was a dirty term. While plenty of dark fiber deals were being done in the wholesale space, few carriers would willingly admit to selling it, much less publicly market it as a product. Times have changed, however, and now many carriers are openly inviting customers to go dark.

There were many reasons carriers were hesitant to sell dark fiber in the past, but two of the most prominent were their fear of enabling competitors, and the belief that by selling dark fiber to customers, they were foregoing key long-term revenue. The concern about increasing competition is valid: If you give another carrier access to customers within your footprint that the carrier could otherwise not reach without a costly over-build, you will have to bid against that carrier to win customers.

The limited revenue concern also was a reality, as a long-term fiber lease is just that, and basically turns a carrier into an infrastructure provider. Growing bandwidth demand means higher revenue from an existing customer in the future, and management of that bandwidth delivery has margin in its own right, all of which is foregone when the carrier turns over the fiber to the customer.

Conversely, there exists considerable incentive to sell dark fiber, as it is a very popular product. In the 2013 ATLANTIC-ACM US Long Haul Wholesale Carrier Report Card, 27 percent of the participating wholesale buyers reported buying dark fiber, and 57 percent of those already buying anticipate increased spends on dark fiber in the coming year.

In the metro market, the demand is even higher. Sixty-five percent of our respondents currently buy dark fiber, almost a quarter of which expected their spending on dark fiber to increase by at least 10 percent in the following year. Beyond traditional wholesale buyers, it’s now very common for wireless carriers — currently the most sought after buyers of wholesale capacity — to request dark fiber to their cell towers on a massive scale.

With this type of demand growth, it’s no surprise that many carriers have come around on selling dark fiber.

The dark fiber, dumb pipe trade off

Keeping these demand trends in mind, many carriers have embraced dark fiber with gusto, most notably Zayo, which has been snatching up companies and fiber network at an unprecedented rate. While most carriers are furiously trying to layer managed services on top of every circuit they sell, Dan Caruso, Zayo’s president and CEO, will eagerly volunteer that, not only is his company very happy to be a “dumb pipe” company, but that it wants to be the biggest and best dumb pipe provider in the market.

In addition to Zayo, other carriers that appear to be making sizable plays in dark fiber include DQE Communications, DukeNet, Edison Carrier Solutions, Integra, FiberLight, Fibertech, Level 3, LightTower, Sidera Networks, Sunesys, and UPN. The pure infrastructure model is nothing new in telecom, with tower providers and datacenter operators building compelling cases for how pure, infrastructure-oriented operators with recurring revenue from very-long-term leases can succeed and maintain solid valuations in the marketplace.

It also should be noted that, while many competitive players are embracing the explosion of dark fiber, others remain strongly opposed to giving up fiber strands to long-term leases. Most notably, the US’s largest carriers — AT&T, Verizon, and CenturyLink — currently do not offer dark fiber, favoring shorter-term, lit-service deals that may allow them to drive or capture additional future revenue via customer bandwidth growth.

While many carriers still refuse to sell dark fiber, it will continue to be a growth product in the coming years. It’s a long-term play, so only time will tell if selling off network elements is a good strategy, but, for now, it’s clear that players refusing to offer long-term leases on strands of fiber are going to be turning away near-term business.


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