The Future Is Fiber
M&A prospects for telecom remain cautious and muted, experts say, but the situation will start to improve over the next year as the recession loosens its grip. And if you’re in a betting mood, wager on this: Demand for fiber will galvanize consolidation.
That’s because T1s are running out of capacity. Fiber, then, is the most future-proof alternative, making it the target asset for service providers needing to accommodate unprecedented bandwidth consumption.
“It’s all about data,” said Roger Valdovinos, founder and managing director of investment bank Blue Beacon Capital.
Names such as FiberTower Corp., Optimum Lightpath, Intellifiber Networks and NTT America stand out as the kind that could most attract investors and rival operators, whether as buyers or sellers, because their fiber holdings rank in the thousands of miles. As for what’s pushing providers toward fiber, think wireless backhaul, consumer video, mobile Internet and data access, and enterprise data storage and disaster recovery needs. To get an idea of what that means, consider this: YouTube guzzles more bandwidth than the entire United States used in the year 2000. The T1, as a result, is fast becoming the dinosaur of telecom.
The communications industry has known for some time that fiber is its destiny. But the economic collapse halted most companies’ ability to fund major strategies. Still, some fiber-based telecom firms have managed to do some deals – approximately 15 engaged in M&A in the past two years, leaving only another 15 with at least 5,000 route miles of fiber, said Dan Caruso, CEO of Zayo Group, during a panel at the COMPTEL PLUS Fall 2009 Convention & Expo. Zayo has wrapped about a dozen mergers of its own since 2007.
“Over the next three to five years, there will be another wave of consolidation,” Caruso said. “The big guys will get together and the number will drop to less than 10.”
Wireless will indeed be crucial to fiber M&A for the next five years or so, said Gillis Cashman, general partner at early-stage investor M/C Venture Partners, in a separate interview. Mobile providers soon will undergo “huge upgrade cycles,” he said, as they install better backhaul to transport the billions of packets crossing their networks thanks to devices such as the Apple iPhone. But, instead of overbuilding and ushering in another tech bust, like the one of 10 years ago, the telecom industry probably will be more sensible with the next wave of investment and M&A. Providers will start “building into demand, not in front of demand,” said Cashman. “The fiber space has held up well,” he added.
To read the full, in-depth article, including concerns about using M&A to dabble into too many different areas, click here or on the source link below.
