For the better part of a decade now, the biggest stories in the US fiber business have been about consolidation. What with Level 3's backbone and metro moves, Zayo's epic roll-up, Lightower's consolidation of the northeast, Birch's twenty plus little CLEC deals, cable's recent fiber forays, and all the rest -- there just aren't that many targets left out there that haven't already said no more than once.
Don't get me wrong, there will always be deals rumored, discussed, and made. There will always be a range of motivations and needs on a company-by-company basis, and I'm sure some deals are being looked at right now in fact. But there just seem to be fewer of them lately, and meanwhile the pace at which new fiber is going into the ground in the metro is increasing, and we even have a few intercity projects out there putting in network. I'm just wondering if we may have passed the point where the industry needs deals and feeds on them and transitioned into a healthy, organically-oriented growth phase where M&A is opportunistic but only if it doesn't get in the way. In other words, has the network M&A fever broken?
One description I've heard from several folks lately of the current state of the industry is that we've entered a 'sweet spot'. Competitive pressures are low, funding is strong, bandwidth demand is insatiable, and the economics really work for a lot of once unjustifiable business models. For instance, operators are now talking about small cell backhaul as the next big thing, whereas just a few years ago the entire wireless backhaul model was viewed with great suspicion. And Cable's success lately shows that there aren't many business types for whom a fiber build-out is that far out of the question.
Some have certainly felt that multiples are too high for a long while, and that organic expansions, stock buybacks, and dividends are better investments. tw telecom and Cogent haven't made inorganic moves in quite a while, for instance, nor has privately held Fibertech. I'm hearing more and more agreement with that outlook when I talk to folks. While there are some deals out there that feel like they'll happen eventually whatever the environment, more often the specific situation seems like the driver rather than a sector-wide wave of similar deals made for similar (and good) reasons.
The situation feels quite different over in Europe where a consolidation wave is just looking for a protagonist or two to get it rolling. But if in the USA we've finally entered that 'sweet spot' there are definitely some advantages. Integration-related layoffs will ease up, hiring will pick up, uncertainty will lessen, and (hopefully) large amounts of money will finally be made. It may be less exciting for us bloggers, but I'm sure something else will be going on someplace.
On the other hand, there are definite monopolistic tendencies built into the fiber world and regulators haven't even opened an eyelid lately where spectrum or net neutrality is not involved. We might just be in the eye of the storm, with round two about to start driven by Big Cable, the cloud, and renewed interest from the broader markets in the fiber business (beyond private equity).
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