M&A prospects for telecom remain cautious and muted, experts say, but the situation will start to improve over the next year as the recession loosens its grip. And if you’re in a betting mood, wager on this: Demand for fiber will galvanize consolidation.
That’s because T1s are running out of capacity. Fiber, then, is the most future-proof alternative, making it the target asset for service providers needing to accommodate unprecedented bandwidth consumption.
“It’s all about data,” said Roger Valdovinos, founder and managing director of investment bank Blue Beacon Capital.
Names such as FiberTower Corp., Optimum Lightpath, Intellifiber Networks and NTT America stand out as the kind that could most attract investors and rival operators, whether as buyers or sellers, because their fiber holdings rank in the thousands of miles. As for what’s pushing providers toward fiber, think wireless backhaul, consumer video, mobile Internet and data access, and enterprise data storage and disaster recovery needs. To get an idea of what that means, consider this: YouTube guzzles more bandwidth than the entire United States used in the year 2000. The T1, as a result, is fast becoming the dinosaur of telecom.
Fiber: It Is Your Destiny
The communications industry has known for some time that fiber is its destiny. But the economic collapse halted most companies’ ability to fund major strategies. Still, some fiber-based telecom firms have managed to do some deals – approximately 15 engaged in M&A in the past two years, leaving only another 15 with at least 5,000 route miles of fiber, said Dan Caruso, CEO of Zayo Group, during a panel at the COMPTEL PLUS Fall 2009 Convention & Expo. Zayo has wrapped about a dozen mergers of its own since 2007.
“Over the next three to five years, there will be another wave of consolidation,” Caruso said. “The big guys will get together and the number will drop to less than 10.”
Ed Vilandrie, director of Altman Vilandrie & Co., a tech consulting firm, sees a more immediate timeline. M&A that should have been arranged before the dot-com bust will materialize over the next six months to one year, he said during the COMPTEL PLUS panel. Expect to see companies stalking properties they lack, such as cablecos buying CLECs adept at selling up-market. The allure of fiber, however, presents the most riveting prospect as the communications industry rushes to fill “the sensational need for bandwidth.”
“There is a huge gap in the network infrastructure that will be required to support what is going on in the wireline and wireless networks,” said Vilandrie.
