Zayo says some customers want a managed dark fiber service

two utility workers setting up a fiber cabinet on a sidewalk

Zayo may be selling a lot of dark fiber, where customers oversee installation and management, but other customers want the service provider to temporarily manage it for them.

Ken des Garennes, CFO of Zayo, told investors at this week’s Drexel Hamilton Telecom, Media & Technology Conference that while it has no specific brand for such a service, the service provider will help these customers light and support the fiber build to a particular building.

“We have done some deals where we’ll lease dark fiber pairs and we’ll manage it for the first five years,” des Garennes said. “This means we’ll light it for you if you’re not ready for that, but they want the long term certainty of having ownership economics of that fiber, but they’re not quite ready to manage it.”

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This isn’t a phenomenon relegated just to Zayo.

Lightower offers a managed private optical network service to customers that don't want to manage dark fiber, but want greater control over their connection.

But what’s different about their service is that Lightower will provide a dedicated fiber and network connection designed for a specific customer. Customers that opt to purchase Lightower’s dedicated offering also get access to a set of specialized support services such as installing optical equipment at the customer premises and bandwidth management tools.

"We'll actually sell them a DWDM box on their customer premises and the other nodes on their network while the fiber is dedicated to that customer,” said Philip Olivero, CTO of Lightower, in a previous interview with FierceTelecom.

Interestingly, Zayo’s dark fiber business deals are benefitting the traditional telecom vendor community, which will often seek out partnerships to procure dark fiber services.

While Zayo did not name any specific deals or dark fiber deal partners, des Garennes said that traditional optical and routing vendors see the dark fiber deals that Zayo and others are winning as another avenue to sell their gear.

“The equipment manufacturers have skin in this game and they love to see the dark fiber deals because they can sell equipment to somebody else, and they are there to support those organizations,” des Garennes said. “They will sometimes partner with us and say we’re proposing these guys build their own network, we’ll sell them a bunch of equipment and we want you guys to come in and sell them dark fiber.”

What’s interesting about Zayo’s dark fiber service sales is that the conversation has shifted from selling to just traditional carriers that needed to fill in coverage gaps to serve an emerging set of non-traditional providers such as school districts, social media companies, content providers and content delivery networks (CDNs).

These non-traditional providers are stitching together network components to improve their customers' experiences with the content they deliver.  

“Over the past five years, we have seen new buyers of dark fiber – content companies, Web 2.0, and CDNs – which are behaving like carriers,” des Garennes said. “CDNs are talking about building their own network, but they’re actually acquiring network components from companies like us and putting them into a network they manage.”

As content companies purchase dark fiber, Zayo is finding that they will also purchase other complementary IP and lit wavelength services to transport content to other points.

“The complementary nature of our dark fiber and network connectivity business is sometimes the same solution required by a customer crosses all of our products,” des Garennes said.

des Garennes said a CDN company may be building their own network and they have two main data centers where they need to push terabytes of data, so connecting the dark fiber makes sense for that application. However, in order to get the content to the edge its capacity needs, such networks may require lower speed circuits so a lit service may be a better fit.

“Maybe the capacity to the edge is smaller so they are buying either a 40G or 100G wavelength,” des Garennes said. “By the way, at the edge they need to host equipment so they’ll buy a wavelength, dark fiber and colocation from us so we’re in the business of supplying network components to big users.”    

Besides content companies, school districts are adopting dark fiber due to changes the FCC made for its E-Rate program.

Under the FCC's E-Rate order issued in 2015, the regulator amended the eligible services list to support the equal treatment of lit and dark fiber services. Local school districts will now be able to purchase either kind of service depending on their specific needs via an FCC Form 470 application.

In its fiscal fourth quarter, Zayo won two contracts with school districts in Colorado and Texas, both of which leverage existing fiber to the tower builds that were completed for a large wireless carrier.

“We see the emergence of content companies, social media and Web 2.0 companies buying dark fiber and even more recently we’re seeing a move by K-12 into dark fiber,” des Garennes said.

For more:
- listen to the webcast (reg. req.)

Related articles:
Zayo snags 1,800 cell site backhaul contract covering 26 markets
Zayo faces learning curve in dark fiber E-Rate market
Zayo's installs rise to $2.4M, but bookings fall in uneven fiscal Q4
Zayo Group’s follow-on sales, Allstream integration, net installs could lift it to record quarter, analyst says

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