Verizon Wireless' dark fiber backhaul quest poses opportunities, challenges for wholesalers

DALLAS--Verizon Wireless' (NYSE: VZ) desire to get dark fiber as its wireless backhaul medium is seen as both a blessing and a curse for many wholesale service providers serving the wireless industry.

A group of service providers representing the competitive and incumbent telco side, including FairPoint Communications, PEG Bandwidth and LSN, addressed the dark fiber issue during the General Session: Wireless Backhaul panel on Tuesday at the Comptel Plus Fall event in Dallas.

As a traditional ILEC, FairPoint has followed its ILEC peers in preferring to sell traditional lit Ethernet and wavelength services. Unlike a long-term dark fiber indefeasible right of use (IRU) contract, the telco prefers the monthly revenue stream it gets with the managed services it provides.

Having spent over $3.4 billion to build fiber facilities out in its Northern New England market, Chris Alberding, vice president, product marketing for FairPoint, said that selling dark fiber to a competitor would be a strain on potential retail and wholesale revenue opportunities.

"We spent $3.4 billion over the past three years building out this next-gen fiber network and when you get a dark fiber request, that's the gold that backs our company," he said. "When you think about it, it's hardest asset to give up and turn over and know it's out of your provisioning service capabilities."

Overall, FairPoint's lit service wholesale and retail strategy has been a beneficial one to help offset declines in its traditional telephony business.  

While it does not break out the amount of Ethernet ports it sells to wireless providers, the service overall has been a growing element for the telco. During the second quarter, FairPoint reported that Ethernet contributed $20.9 million of revenue, or 9.3 percent of total revenue, up from $15.5 million in the second quarter of 2013 as retail and wholesale Ethernet circuits grew 48.3 percent year-over-year. 

Even though they don't want to provide it, the other fear FairPoint has is will they be beaten by a competitor that is willing to offer dark fiber?

"I struggle because if we don't do it, somebody is going to do it, but what am I sacrificing," Alberding said. "That fiber is worth so much to me from business customers, wholesale customers providing a long-term revenue stream to a dark fiber solution I don't have the answer today."

Alberding added "that if it's started requests are going to start picking up, but right now our stance is we're not in the dark fiber business and we only do it on an exception basis."

PEG Bandwidth, which emerged in 2009 as one of the early wireless backhaul specialists, has agreed to provide dark fiber to wireless operators, but they do it reluctantly.

"We are reluctantly participating in the dark fiber business," said Greg Ortyl, senior vice president, sales and marketing for PEG Bandwidth. "It's been a hot topic over the past 12 months and FiberLight has led the way in some of our Texas markets and we are as well and believe that Verizon is aggressively going down that path and awarding contracts."

Ortyl added that while they have not seen ILECs participate in the dark fiber market, they are seeing cable operators get more aggressive.

"We started in 2009 with a focus on cell site backhaul and we got several deals because other carriers did not understand the economics of it or didn't think Verizon was being serious about deploying fiber to the towers, but over the last five years everybody is participating," he said. "Many of the major cable companies participate aggressively in dark fiber to the tower, but we have not seen local exchange carriers participate yet."

LSN, while not totally ruling out the dark fiber opportunity, says each opportunity has to be proven with a sound business case.

"Any response we make to a dark fiber request has to have a strategic component to it," said Jerry Cady, director of sales and marketing for LSN. "There has to be some strategic reason for us completely separate from the wireless provider [that] wants dark fiber for us to participate."

While Verizon Wireless has told various wholesalers they can operate their own fiber networks to the tower better, Ortyl said they will face a number of challenges in operating them.

"There's still a lot of skepticism about how well will Verizon or Sprint (NYSE: S), which we have also heard is interested in dark fiber, be able to operate this network," Ortyl said. "As Verizon gets into this and deploys their DWDM gear and Ethernet gear and start having to provision the network, it will be interesting to see how easy it is and if they can operate these networks better than some of us."

LSN shared a similar sentiment, citing how an unnamed wireless operator did not want to purchase the protection element they proposed.

"We had proposed protection for one wireless client, but they chose not go with the protection that we proposed," Cady said. "Low and behold, a semi-trailer truck run into a pole and the entire region for that provider was down."

Related articles:
Dark fiber, small cells represent the next stage of the wireless backhaul land grab
AT&T, CenturyLink and competitors are divided on dark fiber potential
FairPoint's Ethernet circuits grow 48.3% in Q2, contribute $20.9M in revenue
PEG Bandwidth employs Alcatel-Lucent to address rural mobile backhaul, enterprise service needs
Backhaul specialist PEG Bandwidth acquires InLine, adds fiber, enterprise services

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