Selling Dark Fiber

July 16th, 2008 by · 16 Comments

LightReading had an article yesterday about how Cox is upgrading its national network from leased wavelengths to dark fiber.  Comcast did the same thing a short while back, and Cox's move wasn't exactly a secret so there's no big shock value.  But it did disturb the ashes of an old argument, specifically whether selling dark fiber IRUs is a smart move for a carrier or not.  In this case, the carrier is mostly Level 3 - both for the former leased waves and for the new dark fiber IRUs.

If you sell dark fiber, are you giving away the business?  A customer who switches from wavelengths to dark fiber does so because it costs him less, meaning he pays you less.  And if it works out well, he could theoretically compete with you for some customers.  On the other hand, the same customer's expansion may lead to further sales.  Since that customer is physically bound to your locations, you will generally have an advantage in bidding for further business such as colocation, CDN (content delivery), and voice services.  As with most things in life, it is a tradeoff involving future potentials one can only guess at.

What I am wondering at though is what the price is for that dark fiber nowadays.  After all, in the USA there are really only two large carriers left that are at all likely to sell intercity dark fiber on a national footprint in any quantity these days  Level 3 and Qwest.  WilTel and Broadwing held large piles that are now in Level 3's hands.  Verizon has some new builds but not a national footprint of newer fiber.  AT&T has more, but also a partial, and the thought of AT&T or VZ selling cheap fiber to a cable company seems ... unlikely.  Sprint's fiber is old, some of it is still the direct-buried stuff - not even in a conduit.  XO's fiber is Level 3 fiber, and they only have 18 strands.  Global Crossing is 24 strands on the Qwest network.  So it is Qwest and Level 3, and I haven't heard of Qwest selling much dark fiber lately.  So one would *think* that Level 3 should get a good price for its dark fiber.

And perhaps that is the critical decider in the quandary of whether to sell dark fiber or not:  price.  If the price is right, the deal gets done.  In the case of Cox, hopefully the price was right.  What do you think?  Should carries who have an abundance of fiber sell dark fiber IRUs or not?

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16 Comments So Far


  • Wayne Crimi says:

    Without knowing all the economics, I’d be hard pressed to offer an opinion. I just hope that LVLT doesn’t need any cash generated by a dark fiber sale to reach its goal of FCF.

  • morton dick says:

    I do not have #s to support my view but here it is .
    It takes a humongous amount of volume to support owning & running your own network . Far,far, more than any cable co has or will have .
    Silicon economics ultimately makes these propositions losers . The constant price reductions re bandwidth & the technological improvements cutting costs , place these cos in a different type of business , that is becoming a wholesaler as opposed to being the retailers they are .
    Trying to compete with the co that sells you your backbone is a losing proposition & as time goes on the economics drag you down .

  • Rob Powell says:

    Whether or not it is a good idea for cox or not is, I think, another question entirely. Let’s say it’s a bad idea for Cox though, does that mean it is a good idea for Level 3 to sell it to them, or is it a bad idea for both?

  • Fluids Only says:

    Agree that it’s all about the relative price of each and, of course, the comparative basis on which product is supplied: lease or IRU? That is, whether Level 3 gets improved cash flow from a dark fibre as opposed to a wavelength sale depends on whether the earlier wave sales were leases or IRUs. One thing though, the COGS will be less for fibre as thre’s no equipment to add, so more should go to the bottom line.

    My sense is that Level 3 wouldn’t sell this unless it’s in their interests: either the direct trade-off between fibre and wave sales, and/or the incrementail business they expect/contine to expect to get from this relationship.

    If Cox is a customer that Level 3 can have a solid ongoing relationship with, then Cox’s interest in buying fibre should be good news, because Cox sees enough business to justify committing to substantial investment in purchasing and maintaining equipment.

  • jeremy drane says:

    rob;

    i think selling DF is a GREAT idea for LVLT. i believe that they are depreciating it over 7 years and it went on the books in 98….which says to me that they are thinking about blowing next gen glass and trying to clean out ‘old inventory’ at a nice price.

  • Parkite says:

    Don’t agree with selling dark fiber……i think it is short-sighted. Anytime you control a potentially scarce resource, you have the oppty for outsized profits in the long run.

  • Greg Wilson says:

    Lots of good points here. We have to assume there were either compelling economics, competitive pressure or some business reason to motivate them to sell dark fiber.

    Jeremy offers one plausible reason, there may be others. Perhaps, as you pointed out the desire to position themselves to sell other services – CDN, colo, etc. Perhaps, those negotiations were part of this sale.

  • toddforthree says:

    i think we have an apples and oranges debate here. when we sold dark fiber before it was to companies that were going to compete against lvlt in long haul. the companies bought the long haul fiber and then tried to sell services AGAINST us in the market place to lets say aol, msft and yahoo. it created competition that some who owned lvlt never did like but they took the money and eventually got the fiber back. does anybody really think cox is going to do that and try and use that dark fiber to not only light cox’s stuff but but offer wholesale rates to people lvlt is trying to sell too? i dont see that, so i think we are comparing apples to oranges.

    by the way lvlt has made 4 billion dollars short selling fiber.

  • Alfred J. Beljan says:

    LVLT previously sold 18 strands of DF to XOXO and have been not very happy with that decision since the ink dried on the agreement. I believe this DF sale to Cox is another poor decision unless they intend to blow some typeof a better and NEW fiber in one of their empty 9 +/- conduits. LVLT should remember the first order of business is to sell your products and not your business.

  • Alfred J. Beljan says:

    Merriman just reported that:” Note that in early June, the company completed the sale of its advertising distribution business of Vyvx to DG FastChannel, Inc. for $129 million in cash.”

    was LVLT short in their 2Q08 #s and had to make a DF sale to Cox for FCF ?? Nah…

  • Greg Blevins says:

    More is better. Cox is upgrading so that it can provide for more digital content. That growth continues the compounding that benefits everyone in the industry. Level 3 has a presence that will reap revenues well beyond what they receive directly from Cox.

  • carlk says:

    Without knowing the inner workings of the financial machine that comprises LVLT’s decision making processes for sell vs. lease, two things pop up in my mind, with the first having to be revisited after the second is stated.

    The first might be lunacy; however, when reflecting upon this crew in the past. Of course, with O’Hara mostly gone, it might be plausible again:

    1) Trust the management team

    2) The PR points to “out of territory” selling opportunities where “metro connections” will become important later.

    You see, we’re back to trusting the management team, or rolling up our sleeves and pushing them all out, in order that we can run this company!

  • Eric S says:

    Two things to remember.

    1.) They are not selling any dark fiber. It is a long term lease. Even in the case of XO.

    2.) The previous deal with Comcast has been called a homerun b/c of the follow-on svcs mentioned.

    Selling DF top Cox is indicative of one thing – Cox’s bet on the future of that market. If Cox, who is an incredibly smart buyer(their own take private transaction as the case study) is making the same bet that Level 3 has made, I welcome further confirmation of the supply / demand equation.

  • skibare says:

    The Egg or the Chicken argument here………who gets to FCFBE the fastest wins the race……….and Comcast is great example and still in TOP 10 Customer list over and over……….COX will trip the FCF Wheel of Fortune I hope………
    Skibare

  • tom says:

    I am new to optical networking, and am looking for an article onm the trending of fiber prices (metro). Can anyone offfer a suggestion on where to look?

    • Anonymous says:

      What are you trying to do? Where are you trying to do it? I don’t think you’ll be taken too seriously on this board with such an ambiguous question.

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