Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
On Oct. 17, Zayo began trading on the New York Stock Exchange, marking the return of a pure fiber infrastructure provider to the public markets. Zayo has built a fiber infrastructure business with a deep metro fiber footprint via 30-plus acquisitions. There are many others out there that have followed similar consolidation models – or via organic investments – that have built fiber infrastructure businesses with significant regional footprints. Zayo’s successful offering further validates a core thesis many in the infrastructure community have been pitching for a long time – whether it be dark or lit services, true market demand is driving the need for greater fiber network reach. This thesis can be boiled down to several critical elements.
Traffic growth projections are off the chart
Whether we’re talking metrics on business-related traffic, data center-related traffic or wireless network-related traffic, it’s all projected to grow by double-digit-plus rates over the next five years. Growth drivers are increased mobile data consumption, business migration to cloud services, consumer usage of video streaming and Web-based content, and many other factors tied to the digitization of our business and personal lives. All of these will pressure networks, driving the need for greater and higher capacity connectivity.
And the numbers are staggering. The oft-quoted Cisco Visual Networking Index forecasts North American mobile traffic to grow by 659% from 2013 to 2018. Cisco also forecasts that traffic between data centers and between data centers and end-user facilities will grow by 211% from 2012 to 2017. Meanwhile, Alcatel Lucent’s Bell Labs forecasts metro access and aggregation traffic to grow by 560% from 2013 to 2017, with interconnection between data centers growing by 440%. Comparatively, Cisco forecasts metro traffic will grow by 196% from 2013 to 2018. This list can get pretty lengthy, but it is abundantly clear that usage among all types of end users is slated for massive growth, driving additional required network investments.
Technology to support the expansion
With the traffic story clearly defined, the question of technology follows: Is fiber the main solution or is there another connectivity medium to support the immense traffic growth throughout the ecosystem?
There is no question that wireless networks have an important role in handling end-user traffic. Exactly how that topology shakes out remains to be seen with spectrum constraints, the potential for small cell deployments, Wi-Fi and other components all factoring into the evolution of wireless networking. However, any wireless technology, or configuration of multiple wireless technologies, deployed needs wireline support. Wireless networks simply cannot function without underlying wireline networks on which to aggregate traffic. Fiber remains the best of all wireline options for hauling traffic from wireless access points (macro cells, small cells, Wi-Fi access points, etc.) to core interconnection facilities. And while the macro story of wireless network deployment and fiber connectivity is in its late stages, the small-cell opportunity is in very early stages, with scaled deployments representing significant long-term opportunity.
Business and data center connectivity is a different story. With capacity needs dramatically increasing for mission-critical applications, current copper network and wireless access alternatives to fiber do not offer sufficiently robust connectivity platforms. Ultimately, business demand will drive greater fiber connectivity opportunity to the edge as businesses increasingly require bulletproof connectivity to handle mission-critical and/or cloud-based applications. This will become more apparent to the market at large as businesses migrate more applications – from simple apps like storage to deep, custom and complex solutions – to cloud platforms. Moving forward, fiber will not be a vertical-specific play. It’s becoming a basic requirement for business connectivity across all sectors.
Lack of existing footprint
In reviewing building access options in the U.S., it’s readily apparent that there exists a significant lack of fiber-based connectivity in many metros. Even though bandwidth requirements are increasing among end users, many locations in America’s most populated cities lack fiber-based connectivity. The best example of this predicament is in Manhattan – the epicenter of the global financial and media world with many support industries deeply embedded in the area. One would expect Manhattan to have an ultra-dense fiber network with most buildings possessing a multitude of fiber connectivity options. However, a quick review of the New York City broadband map reveals that Manhattan is under-connected with fiber. While operators have battled it out for the low-hanging fruit of data centers and large corporate buildings, the majority of other opportunities have been left largely unattended (or under-attended). The good news is that as a result of this opportunity and others requiring fiber connectivity, operators are looking to enter. In the last year, Atlantic-ACM has witnessed at least five new fiber operators with network ownership looking to stand up connectivity-driven businesses in Manhattan. The economics of these opportunities and many others are hyper-localized, but when evaluated correctly and well understood can create significant opportunities for fiber network operators willing to invest in network expansion to meet growing demand.
The bottom line
Immense opportunity exists for deeper fiber penetration into metro areas throughout the U.S., both driven and supported by robust end-user traffic growth. This story is not new, but its recent affirmation by the public markets via Zayo’s initial public offering serves as a strong validation of future demand. All fiber opportunities are not created equal and careful evaluation of ground-level dynamics is required to understand drivers and potential dollars behind any opportunity. However, for those that carve out the correct markets there are immense opportunities on the horizon – in both the wired and wireless worlds.
Aaron Blazar works as a VP for Atlantic-ACM on projects ranging from market sizing and forecasting to corporate strategy covering both the wireline and wireless telecom markets. Blazar has a broad perspective on the telecommunications industry and expertise in market segmentation, market analysis, market entry strategies and statistical analysis.
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