The realization that gigabit (and beyond) broadband speeds will be the baseline enabler of the Fourth Industrial revolution has private equity’s attention, which might kick off another round of carrier M&A.
The idea of broadband service as a fourth utility (i.e., alongside gas, electricity and water) is not novel in terms of the concept. Municipalities all over the world have formed study groups, such as the Forth Utility in Ohio to study a variety of concepts related to treating broadband service as a critical service necessary for the maintenance of public welfare and commerce. However, if this is true, then doesn’t the plumbing required to provide this utility become a critical asset class as well?
With so much focus in the U.S. on decaying roads, bridges and dams, it seems that fiber might have already surpassed these other asset classes as, arguably, the most prioritized national investment priority. Beyond public funding, however, private sources of equity are also being put into play as a source of capital to fund fiber build-outs in support of 5G, Cloud and IoT proliferation.
Over the past few months, several sources have point out that private equity funds that have historically invested in roads and bridges as undervalued asset classes, are now looking at fiber assets in the same context. If so, there is little doubt that the momentum behind 5G, Cloud and IoT should drive investments in fiber, and fuel a new round of M&A. Given the “chatter” related to companies such as CenturyLink, Verizon, Windstream and others, this could happen as soon as the second half of 2018, and almost certainly into 2019.
Focus on European Fiber Opportunities
With so much consolidation in the U.S. having already happened, or in the process of happening, companies such as CenturyLink are being discussed as being in a prime position to become players in a similar round of M&A in Europe. On many levels, this line of thinking makes sense. Europe is full of disparate fiber networks that would benefit greatly from both physical and logical integration. CenturyLink, with its acquisition and on-going integration of Level3 under its belt has a good deal of the operational wherewithal to take on similar activities in the Old World. Naturally, so would companies like Verizon and AT&T.
Of course, with the Level3 integration still ongoing, CenturyLink has its hands full. Similarly, with Verizon and AT&T spending full bore on SDN/NFV and 5G build-outs, neither American giant might have an appetite for a major round of foreign expansion. Then again, if private equity is getting involved, none of these companies – or others like them – might need to lead the way. As such, it might just be that fiber, some of the un-sexiest stuff in the telecom ecosystem, could kick off a new round of entrepreneurship that helps lay the proverbial ground work for this next industrial revolution we’re all expecting.
