Is a Fiber Roll-up Coming?

When I look at all of the new market entrants into the broadband industry and the frenetic pace that internet service providers (ISPs) of all sizes are building fiber, one of the first thoughts that come to my mind is this is an industry that is headed for a roll-up. There has already been some consolidation of last-mile fiber networks, but the handful of networks that have been purchased will pale against the big roll-ups that I think will be coming in a few years. The industry will be ripe for roll-ups for several reasons. Probably the most important is that the private equity that is being invested in fiber today is not going to be satisfied with the slow but steady utility-like earnings made by last-mile ISPs. I also think that the day-to-day hard work of operating an ISP will set in at some point. As the huge amounts of fiber construction on the horizon come to fruition, the opportunities for additional expansion are going to quickly disappear. That’s the point when industries consolidate – because growing by acquisition can be profitable when organic growth is not possible. The other reason for eventual roll-ups is that operating fiber-based networks is an economy-of-scale business. The overheads per customer are a lot less in an ISP with 200,000 customers compared to one with 20,000. Size also brings operational improvements in areas like customer service and software systems that favor big ISPs over small ones.

[Doug Dawson is president of CCG Consulting.]