Revisiting Those Fiber IRUs From the Bubble, Again

November 20th, 2012 by · 8 Comments

There’s a very interesting article over at Capacity Magazine that takes a look at the future of European fiber networks in light of the coming expiration of the IRUs signed in the bubble years. Yes, the golden age of the fiber swap (1997-2000) was 12-15 years and four presidential elections ago now.  The industry is sliding inexorably toward having to figure out what comes after those IRUs come due.

Each was somewhat different of course, and in many cases the leasing operator has the option of taking over the asset for a nominal fee. But the question of OAM fees would need to be negotiated, and it’s completely unclear right now whether fiber owners will prefer the status quo and just be glad for the further payments for old fiber or whether they might use the negotiations as leverage to reclaim the fiber level entirely.  And in Europe, there are still a lot of operators out there that use these fiber IRUs as a core part of their business and will face this question at roughly the same time.

The US and Europe followed a similar path in the bubble when it came to fiber IRUs, but since then have diverged somewhat. In the US, there has been much more consolidation and nearly all of the fiber IRUs sold or swapped in those days came off of fiber builds now in the hands of two operators, i.e. CenturyLink and Level 3.  Additionally, much of the dark fiber itself was returned over the years in favor of waves and such.

But there are still a few holdouts here, and there are rumblings of a future disagreement in at least one case. XO’s 18-fiber asset within rival Level 3′s original fiber plant is probably the biggest, and it’s one that I’ve wondered about in the past. XO claims full title to the fiber, and indeed the IRU agreement reads that way. But unofficial rumblings at Level 3 suggest they see the IRU expiration (whose date is unclear, but probably 5 years off if I had to guess) as a major event that limits XO’s options.  The Capacity Magazine article illustrates their leverage, which is likely the  the ‘stranded asset’ case, i.e. the simple fact that XO’s ownership of the fiber won’t take them far without OAM services to go with it. XO and Level 3 have banged heads over the use of the IRU fiber in court before, and seem likely to again before it’s all said and done unless an M&A intervenes that changes things.

CenturyLink and Level 3 each have acquired various IRU assets from the others’ footprints over the years, so the two probably have enough common ground and alternative options to get past the threshold without a public fight breaking out. Other fiber IRU assets still out there in the US that date from the same era include those of Teliasonera IC, the older pieces of Cogent’s footprint, tw telecom’s western intercity links, and the intercity pieces of AboveNet that Zayo just acquired, each of which run on fiber IRUs within the current Level 3 and CenturyLink asset bases (WilTel in many cases).  Verizon and AT&T each have pieces of their network built off of such swaps in addition to their older fiber builds, however they have the obvious leverage of having the resources to build if they must.

And out there in the wings hoping to take advantage of the situation is still Allied Fiber and its protagonist CEO Hunter Newby. This whole scenario has been part of his pitch for a new wholesale dark fiber build in the US, the bulk of which is still looking for the funding it will need to start blowing fiber.  Since service providers are, on average, much more reluctant to sell intercity dark fiber IRUs the way they once were, the so-called ‘fiber glut’ hasn’t been a meaningful concept in a long time.  As we get closer to the end of those 15 and 20 year IRU terms, perhaps Allied Fiber’s plans will gain more traction.

Categories: Fiber Networks · Internet Backbones

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8 Comments So Far


  • Morty says:

    Rob,
    With regard to the XO IRU, I would make book that it was renegotiated when XO held up the GLBC deal. You will recollect,that XO withdrew its objection to the deal within a month or two .

    Morty

  • ABC says:

    LVLT needs to just sell their network to more capable hands and move on. Execs have been running this like a ponzi scheme for far too long now.

  • Avatar of toddforthree toddforthree says:

    Other fiber IRU assets still out there in the US that date from the same era include those of Teliasonera IC, the older pieces of Cogent’s footprint, tw telecom’s western intercity links, and the intercity pieces of AboveNet that Zayo just acquired, each of which run on fiber IRUs within the current Level 3 and CenturyLink asset bases (WilTel in many cases). Verizon and AT&T each have pieces of their network built off of such swaps in addition to their older fiber builds, however they have the obvious leverage of having the resources to build if they must.””””””rob

    what percentage of zayo’s network is run on iru’s? i remember reading about twtc and how they have iru’s with time warner. time warner restricts twtc from using the fiber for home video and its unclear to me if that also pertains to video to a business.

    it seems like this is an area that will get messy at some point.

  • Anonymous says:

    This is a very interesting issue and one that I thought should be included in the same discussion as the discussion on the Zayo building adds – IRU owned routes vs facility based routes should be one of the more important metrics looked at, imo. It seems to be a similar problem in that companies don’t fully disclose this information either (or is that even a true statement?), but insiders seem to have knowledge that is not public. Maybe inside (or non-disclosed) information is the best thing Zayo has going for them….

  • CarlK says:

    I have heard it ad nauseam for more than fifteen years, but one day, even if it’s fifteen years hence if not longer than that, The Masked Man, Krowetonite, who wreaks Death and Destruction like The Grim Reaper to “price” in the marketplace with respect to “Silicon Economics” along with “Moore’s Law,” is going to be right about paraphrasing whomever it was that he stole it from, regarding a man, or the collective human race not having enough “BANDWIDTH” due to “SCARCITY” over time.

    As for a man not ever being able to become rich enough, there are too many of those kind like him, especially in America, who remain unwilling to make the ultimate sacrifices during the “waiting period,” i.e. setting the right examples for your employees, investor/shareholders connected to salaries while running the corp.’s you “believe in.” SuperDan, The Zayo Man gets a plus next to his “grade” in that regard.

    That same Masked Man’s connections to and feedback by SuperDan with respect to this IRU phenomenon might offer up more LIGHT to satisfy the analysts with their constant inquiry for more “COLOR.” :-)

    • Fancy Pants says:

      Are we allowed to say “dickriding” on this forum? Just because a C-level responded to your lucid rants, does not mean he (or any of us) has any idea what you’re talking about.

  • CarlK says:

    Let me be more “lucid” for you, Fancy Pants, since your attack seems directed at me.

    For fifteen years Jim Crowe has done nothing but talk about the inevitable bandwidth crunch that was always “right around the corner,” or was it “Breaking Away” circa 2002 without ever garnering Wall Street’s support along the way. To the contrary, he has only garnered Wall Street’s distrust and bad taste in their mouths permeating the majority of reports they have ever written with their pens. Sell side, smell side!

    Since Wall Street rules price and countless numbers of public participant shareholders across all walks of life have been exposed to Jim Crowe’s failures–Wall Street’s dictum’s–then somebody at the top needs to be accountable versus talking more incessantly about nebulous “trends” that never come to pass, and may not during Walter Scott’s or his lifetimes.

    Anonymous’ comments have been outstanding while attempting to uncover parts and parcels of the mysteries, cover ups, and lies which continue at least for now, to make this “bandwidth” business a terrible business with or without financial mavens steering the ship.

  • Brian Scully says:

    In February 2003, Level 3 and XO Communications (“XO”) amended their 1998 IRU agreement. As part of the 1998 agreement, XO purchased 24 fibers and one empty conduit along Level 3’s North American intercity network. The amended agreement, among other things, required XO to return six fibers and the empty conduit to Level 3. In return, Level 3, 1) reduced the annual operations and maintenance charges that XO was required to pay under the original agreement, 2) provided XO an option, expiring July 2007, to acquire a 20 year IRU for a single conduit within or along Level 3’s intercity network and 3) provided XO an option to purchase up to 25% of the fiber installed in the next conduit within or along each segment of the intercity network.
    Taken from the LVLT 8-K filed Nov 20, 2006.

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