Zayo says that Sprint and other wireless operators’ realization that fiber will play a key role to connect small and macro cells is proving the importance of having available fiber.
Dan Caruso, CEO of Zayo, said during the keynote speech at this week’s Cowen and Company 3rd Annual Communications Infrastructure Summit that wireless operators are increasingly realizing the role fiber will play in their current 4G and future 5G network wireless plans.
“Sprint thinks they can do a lot of backhaul over the wireless network,” Caruso said. “They are starting to come around and realizing that if you have fiber in the proximity of where you want to put a radio, fiber is important.”
Caruso’s sentiment is well-founded.
Sprint’s CTO John Saw said in 2016 that the company would use dark fiber for backhaul in addition to microwave. While the wireless operator acknowledged dark fiber is not cheaper than traditional fiber, it will allow the operator more control over the speed and capacity of the backhaul circuit.
The use of dark fiber was part of a broader plan by Sprint to revamp its backhaul, because the company currently pays approximately $1 billion to competitors AT&T and Verizon for fiber-based backhaul.
Caruso said that having large amount of available fiber affected how wireless operators bid during this past spring’s spectrum auctions.
“Even in the spectrum auctions this past spring, wireless carriers were tempered in the bidding because of the relationship of fiber and spectrum,” Caruso said. “Maybe it’s cheaper to put a bunch of fiber out there to connect up radios and you don’t have to spend as much on spectrum.”
Overall, Zayo has identified what the company says are six fears it faced when Caruso and a group of Level 3 teammates founded Zayo in 2007: fiber will be a dumb pipe, wireless replacing fiber, a fiber glut, dark fiber dangers and 9x multiples.
“People were fearful about fiber investments in 2007 because of what happened during the big telecom and fiber meltdown,” Caruso said. “A New York Times headline read: 'The fiber optic fantasy slips away.'”
Analysts agree with Caruso’s thesis.
“We continue to believe Zayo is well positioned to benefit from the growing importance/value of fiber and believe the stock has an attractive risk/reward profile,” Cowen said in a research note.
Small cell caution
One area in wireless Zayo is closely following is the small cell backhaul market. In addition to offering dark fiber and lit services like Ethernet, Zayo's mobile infrastructure unit provides a number of complementary services, including site planning, installation, permitting and network monitoring. The majority of the small cells will be placed on existing aerial utility poles.
Mobile Experts forecast that carrier and enterprise segments will grow at over 30% CAGR from 2016 to 2022. The research firm noted that growth due to "densification" and indoor coverage has grown in strength, resulting in a strong revenue outlook.
While the wireless industry is moving fast on small cells, Zayo remains cautious about pursuing the opportunities, particularly if they don’t make good business sense.
“There are some small cell deals that make all the sense in the world and there’s some that are out there wondering if it makes sense to do those deals,” Caruso said. “In some cases, we decided to not do those deals and it’s an area to be a little bit cautious.”
That’s not to say Zayo hasn’t had luck in the small cell backhaul race. In February 2016, the service provider announced plans to dedicate about $75 million in capital to build out 1,000 new sites.
But wireless backhaul is just one application where Zayo’s fiber network can be applied to support a growing set of new applications and uses.
Besides serving wireless operators, fiber is relevant to other industry needs, including storage/cloud, media, biotech, hospitals, schools and manufacturing.
“Fiber is relevant to all industries,” Caruso said. “It is relevant to storage, SaaS, media, biotech, and if you think about it fiber is relevant to all innovations.”
Zayo itself has found this trend taking place as it has built out dark fiber to wireless towers in areas like Texas; it has been able to extend this build to serve a multi-site school district.
The service provider launched a plan last year to extend services to the area schools via a fiber network build that's under construction in Dallas-Fort Worth. Specifically, the 1,178-mile platform consists of 440 miles of previously planned FTTT build, 443 miles of existing network and 295 miles of new construction, for example.