As Verizon focuses its fiber expansion decisions to accommodate multiple network needs, the telco is driving an industry-wide debate on whether to build, buy or lease fiber assets.
Hans Vestberg, CTO of Verizon, recently told investors during the Citi conference that it will consider all three options to meet its needs.
“You’re always looking at how to do it yourself and what are the economics for that,” Vestberg said. “You lease when there’s nothing to buy and building it does not make sense so we constantly have that evaluation.”
Being an integrated wireless/wireline carrier, the service provider is using its fiber network investments to serve various wireless and wireline functions within its broader business.
In markets like Boston where it finally committed to building out a new Fios market, the service provider is building out the network itself, leveraging new and existing fiber networks. The Boston network will not only serve Fios, but also future 4G, 5G and enterprise customer needs.
Vestberg said that “when we look at a business case, we look at how we will benefit the 5-6 business units we have.”
Since Verizon is just one of several carriers that have large fiber needs, Barclays said in a research note that Verizon’s actions reflect the challenges and opportunities the service provider industry faces in procuring fiber assets.
“Verizon’s own decision-making process provides one of the best examples of how carriers may evolve their thinking on the build vs. buy vs. lease debate,” Barclays said. “Historically, Verizon was a lead customer (and remains a lead customer) of third-party fiber providers such as Zayo. However, following the acquisition of assets such as XO Communications, the company has evolved its thinking to embrace an owner’s economics mentality in certain geographies.”
Owner’s economics
Whether a service provider chooses to either buy, lease or build its own fiber, each of these approaches have their pros and cons and reflect individual needs of a market.
Buying fiber outright or building it gives Verizon owner’s economics: The asset is owned by the carrier and enables it to maintain control versus having to depend on a partner’s network.
Over the past year, one in which Verizon still purchased dark fiber assets from providers like Zayo, the carrier has continued to evolve its fiber expansion strategy. Besides signing two deals to build out its own fiber with Corning and Prysmian as key suppliers, the service provider is not shy about taking out its checkbook to buy fiber assets.
The service provider’s acquisitions of some of WOW’s Chicago fiber assets and XO Communications immediately deepened its network reach for wireless and enterprise services.
Barclays said that the advantage of purchasing or owning fiber assets is that a service provider can more effectively respond to customer needs across varying business lines.
“While the third-party shared infrastructure model can materially reduce costs through shared economics, it also doesn’t allow for the strategic differentiation that ownership may ultimately provide,” Barclays said. “Moreover, as carriers look to utilize fiber for multiple options—for example Verizon’s One Fiber strategy in Boston—it may make sense to own the assets themselves.”
Verizon is hardly alone in its multipronged fiber mentality. Fellow service provider Windstream—which also serves as a CLEC in several markets by renting Tier 1 network facilities to connect to businesses—is finding ways to enhance its network by building out its own facilities and making targeted acquisitions.
Having already built out fiber in various markets, Windstream has continued to expand its own fiber network in key markets. Like Verizon, the service provider has also been on a build, buy and lease drive. Some of those markets include large markets like Charlotte, North Carolina.
A key focus for Windstream in building and expanding its existing fiber networks is to reduce network access to costs to third parties. Overall, the service provider set a goal to save $1 billion on yearly network access special access costs by deploying more of its own metro fiber and more into the buildings that house its business services customers.
But like Verizon, Windstream is not afraid of shelling out money to expand its network via acquisitions. One of its most recent large network acquisitions was EarthLink. Following the completion of that deal, the provider opened five new fiber routes located on its 100G nationwide network.
Purchasing fiber also remains option for Windstream. For its West Coast network build, Windstream purchased dark fiber IRUs because it would enable the provider to rapidly get a network in place. The service provider will also build its own metro on-ramps to the dark fiber routes.
“To conduct this type of build all the way to the West Coast would take several months so we’re leasing the fiber and lighting services ourselves,” said Jeff Brown, director of product marketing and product management for carrier services at Windstream, in an interview with FierceTelecom.
Securing anchor tenants, returns
Regardless of the approach a service provider takes on buying or build fiber, any decision will be based on the specific needs of a market and what returns they can get from that build.
By getting that anchor tenant, the service provider not only gets the initial customer contract but can then attract other opportunities with its fiber.
Other providers slightly newer to the fiber game like Crown Castle have a mentality of building fiber to meet a customer contract need. Having amassed a fiber arsenal in recent years via acquisitions of other providers like Lightower, Sunesys, FPL FiberNet and Wilcon, Crown Castle is about aligning its fiber with a host of small cell, enterprise and other wholesale opportunities.
Dan Schlanger, CFO of Crown Castle, told investors during the Citi 2018 Global TMT West Conference that the company’s fiber build outs for small cells follows this model.
“We don’t put in small cell systems of build fiber until we have an order for that small cell,” Schlager said. “We have to have anchor order before we go and build a system.”
Other providers like Fatbeam, a regional provider has taken the approach of establishing school districts as its initial dark fiber anchor tenants. After building out a fiber network accommodate school districts in four states—Washington, Oregon, Idaho and Montana—Fatbeam simultaneously built over 200 miles of fiber to “modernize wireless infrastructure” in these four states, for example.
While Verizon’s fiber plans have been getting the big headlines only carrier procuring fiber, it’s hard not to notice the carrier’s influence. In a way, Verizon’s aggressive three-pronged fiver strategy has raised a new fiber sourcing conversation. --Sean | @FierceTelecom