In the previous several posts, we established several foundations for Zayo’s Investment Thesis:
- Bandwidth is rapidly growing and this will persist
- Fiber will be the workhorse for bandwidth transport for as far as the eye can see
- New generations of fiber are unlikely to make current generations of fiber obsolete
A fair response at this point is a heavily sarcastic ”haven’t we heard this story before?” That is, the three points above led to lots of dollars being spent on the construction of fiber networks. My time horizon begins in the late 1980s, when competition with the baby Bells began. (MCI, Sprint and the break-up of AT&T had already taken place—I’ll leave it to another blogger to cover the roots of LD competition.) Between the late 1980s and early 2000s, many billions of dollars were spent by competitors to the former AT&T monopoly. By my estimate, these companies invested $85B. That is a big number. (Later, I will show my derivation.) $85 bill is a lot of dough.
Granted this money was spent on more than just fiber construction and associated electronics. Switches, colo facilities and opex burn chewed up a big portion. Regardless, $85B or thereabouts was invested with lots of it pumped into ground. In the meltdown, it was not demand that was the problem—it was supply. There were simply too many companies with too much bandwidth (and other stuff) to sell. It didn’t matter that demand was growing—it was not growing fast enough to justify the ample supply.
So why does Zayo believe 2008 is any different than 2002? After all, the fiber is still in the ground. This is a fair question—to address it properly requires a bit of a history of competitive telecom. I will skip past the MCI and Sprint era. My story will begin in the late 1980’s, when competition with the baby bells began. It will take many posts to tell this story. I will begin this in about 2 or 3 weeks. In the meantime, I will cover some other topics. Stay tuned.
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