In the Wall Street Journal yesterday there appeared an article entitled "Optical Delusion? Fiber Booms Again Despite Bust" which requires a response. While noting the importance of where the fiber is in determining its value, the author continues to speak from the doubtful perspective that there is some pile of fiber out there that we have to use up before we can justify putting in a route to someplace that doesn't have any.
Nobody is out there building gobs of fiber and hoping they will come, at least in the US. Those days really are over. The industry is building out fiber based on customer demand, meaning actual revenues and a return on investment. The business case for building that fiber does not come from traffic growth guesswork for the next decade, it comes from sites that need the bandwidth now and can't get it from copper and will sign a contract to get it. Even the limited speculative buildouts out there that don't have customers attached ahead of time are to places with known demand and little competition.
The article quotes 19 million miles of fiber as having been built out in the US in 2011, which I have no cause to doubt. But a key point here is that the vast majority of these miles were not intercity routes like those specifically mentioned in the WJS article, but rather metro and regional routes hooking up stuff that was never hooked up before because it wasn't viable then and it is now. They didn't add to a glut because there wasn't any fiber at all there until now.
The problem here is that too many look at fiber buildouts and see the total theoretical capacity put in place as the key number. Of course there's always too much of it that way, but that isn't the right way to look at it and wasn't why the bubble burst last time. The problem back then was that there were too many trying to sell the same exact pipes to customers who didn't really need it yet.
If an operator builds out a 432-count metro loop to virgin territory, he has just put in a massive amount of theoretical capacity that will probably never be exhausted. Has he created his own glut? No, because he's the only one selling it. If two dozen other companies match him on the same route, or if he sells too much of it to competitors at prices that didn't make back his construction costs then yes things might get dysfunctional. But that's not the fault of the fiber.
The 'fiber glut' was never about a glut of actual fiber capacity or mileage -- that was always an optical illusion. The fiber glut was about too many companies targeting the same opportunity by spending billions up front on a business model they didn't understand. It didn't matter that traffic growth was slower than expected back in 2000, it could have been faster than expected and the system would still have collapsed.
So if the market wants to keep an eye on the risk of the 'next fiber glut', it should stop throwing around raw total capacity numbers and fiber mileage counts and focus on whether there are too many participants in the market for it to be healthy. Last I checked, the number of fiber operators was still dropping on all fronts in the US, and more and more of them are either profitable or knocking on the door.
The key question one must ask to determine the health of the fiber sector is quite simply this: Are pricing trends stable enough that fiber builds are generally able to make back their construction costs within a period they can reasonably project? Because once a fiber build passes that threshold, it's home free.
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