Will 2011 Be the Year of Fiber to the Building?

Background:

Stimulated by predictions of exponential Internet traffic growth and advances in DWDM/ fiber optic technology, the dot com and telecom bubble years of 1998-2001 were marked by waves of optical network start-up companies that were very well funded by VCs and Angel Investors. Many of those companies were focused on Metro Optical network access, assuming that incumbent telcos and CLECs would build out their fiber plant all the way to the business customer premises- typically terminated in the basement of an office building in a densely populated metropolitan area. Needless to say, that didn't happen and almost all of those start-ups went out of business.

Fast Foward to the Present:

On December 29th, the WSJ reported that there's a resurgence of interest in metro optical networks. In an article titled, The Fiber-Optic Networks Regain Some Glow, the Journal states:

“After the telecom bubble burst a decade ago, fiber was a dirty word.” The author writes. “Now, the fiber-optic network business is enjoying a resurgence, particularly for metro fiber, the high-capacity lines that connect a city’s office buildings, data centers and cellular towers to the Internet.”

The WSJ article notes that there have been 14 acquisitions in the metro fiber industry this year alone and 45 since the fiber market began its turnaround in 2006. It states, "The deals have turned a market that once had many small participants and a few giants into one made up of a handful of regional and national players. Analysts say the consolidation has helped stabilize the prices fiber owners can charge customers like banks, phone carriers and universities that lease their networks."

What we found most remarkable about this and similar articles, is that we've never heard of the new breed of fiber facilities based telcos Zayo Group, founded in 2007, was reported to be one of the largest with networks in 27 states and Washington DC. They have acquired 15 smaller fiber optic companies in the short time it has been in existence.

Dan Caruso, CEO of Zayo, was quoted in the article. He said, "People lost so much money during the meltdown that most investors did not want to touch fiber-based telecom." How times have changed!

More on Zayo's value proposition at:
www.zayofibersolutions.com/metro-and-regional-dark-fiber-networks

In an article titled, 2010 Year in Review: CLECs bulk up on fiber and services, FierceTelecom reports that, besides Zayo, two other CLECs were very aggressive in expanding their fiber footprint. In particular, Lightower Fiber Networks, and Paetec (Nasdaq: PAET). The author says that CLECs are using M&A as a way to scale their respective businesses to target new larger business and wholesale opportunities. But we wonder if those bulked up CLECs will be able to compete with the larger players providing telecom services to business customers? Those include AT&T, Verizon, Comcast and TW Cable who are already offering a range of metro fiber bassed services, including "Carrier Ethernet."

Perhaps the most interesting of all the related articles and on-line posts on this topic is one by Rob Powell of Telecom Ramblings, titled Metro Route Mileage Leaders for Competitive Fiber Operators.

That post lists the top 20 metro fiber CLECs, ranked by total mileage for metro loops and laterals, but NOT counting long haul links. To no one's surprise, Level 3 leads the pack with 27,000 metro fiber miles, followed by TW Telecom with 21,000 miles.  Mr. Powell states that the list does not include the incumbents (e.g. AT&T, Verizon) and most cable operators (e.g. Comcast, TW Cable, others) – many of whom would obviously be at the top. Hence, this should be thought of as competitive metro fiber.

What do you think?  Can competitive carriers alone bring fiber to the building or do the giant telcos and MSOs have to light their dark fiber to make 2011 the year of FIber to the Building?  And is there any place for independent telcos like Surewest?

Special best wishes for a Happy New Year!