With us today for another round of talk about the fiber business over in Europe is Brady Rafuse, CEO of euNetworks. It has been 10 years since Brady took over as CEO of euNetworks, and over that time the company has grown from humble origins into one of the most dynamic, independent, pan-European infrastructure providers in the market. This week the company announced the delivery of Super Highway 1, a brand new and fully diverse fiber route from Dublin to London complete with a new subsea link across the Irish Sea.
TR: This week you are unveiling a newly completed fiber route, Super Highway 1. What is it, and why haven’t we heard about it until now?
BR: We try not to say anything about what we’re doing until we do it, but we’re mostly substantively complete now and we will be fully deployed this month. This new build is over 1000 kilometers of brand new fibre and duct going from Dublin, through the Irish Sea to Southport and then Manchester, around the north of England and straight down where it splits out both to London and also around to Lowestoft. That’s on the east coast of England on the most direct path across to the Netherlands. It is a brand new, completely separate route from Dublin to London.
TR: What drove you to build your own subsea cable across the Irish Sea as part of this project?
BR: Having 48 pairs of fibre on one cable in the Irish Sea wasn't necessarily number one in my hit parade of things to do. I would have much rather had six pairs of fibres on three different cables in three different seas, but that wasn't for sale. What we perceived was that this was an incredibly important stretch of western European internet infrastructure that had the potential to go into exhaust at any point, which would cause a great deal of problems for our customers and our industry. As a result, we took this project together with a company called MDM, McMahon Design & Management. They are the company that we bought Inland Fibre from in Ireland in 2015. Working with MDM we have completed the Rockabill submarine system, a brand new 221km high fibre count, ultra low-loss cable from Portrane, Ireland to Southport, England, with brand new G654C optical fibre throughout.
TR: What other projects do you have in mind elsewhere in Europe? Will you be reaching out into new geographies or focusing on density?
BR: We have really pushed the extent of our long haul build significantly over the last 5 years, pushing towards the edge in Scandinavia, out to central Europe, and down into Spain and Italy. We have built new metro rings in Manchester, Paris, Milan, and Madrid. The thing about Dublin to Amsterdam is that it never used to be a route. The traditional core network routes were all built 20 plus years ago linking Frankfurt, London, Paris, and Amsterdam (FLAP). Yet since then we've seen pretty significant advances in fibre technology, the importance of fibre count, spacing of ILAs, etc., all of which have significant impacts now on all of our customers. My gut feel is that we'll probably be looking at selective overbuilds, rebuilds, and new route construction in this core heart of the market. We are thinking hard about connectivity on some routes, and there will be more organic builds as data centre clusters in each major city spread out. The requirements for power are so much higher and the ability to be served in downtown London, Frankfurt, Amsterdam, etc. just isn't as easy as it once was. So I still see continued organic development of our metropolitan networks, but going forward I'm not sure that our footprint expands massively geographically.
TR: I don’t see as much metro connectivity up in Scandinavia on your network map, how do you approach expansion in those markets?
BR: Scandanavia is really important to us and we’re constantly considering expanding our presence there. But it is really data centre connectivity that is key for us and we have good data centre connectivity in the region. We’re not about to construct a Stockholm wide metro network to serve enterprise customers.
TR: Whereas in parts of the UK, Netherlands, France, and Germany, you have a more significant enterprise connectivity presence?
BR: We do, but mostly where enterprises buy hyperscale/content products. We don't sell IP VPNs, or SDH or many of the enterprise grade services. We do have some things we're working on which we think potentially could be disruptive in the enterprise space, but we're very keen to stay doing what we do. That might mean we don't get as much money from big, shiny buildings as we ought. But I think that when you start talking about big enterprises outsourcing their core business architecture, I'm not convinced that euNetworks is the company you go to there. I think you go somewhere like Azure or AWS or any number of companies much better qualified than us. We're quite happy to provide the plumbing for that, because that is what we do well. We're an internet infrastructure business. Not an enterprise-grade full-service telco.
TR: Do you foresee growth opportunities from 5G deployments in the near future?
BR: I remember Dan Caruso talking about how 5G investment in the United States trailed Asia significantly, and I couldn’t help but think how much further behind America Europe is. I don’t think that it's insignificant that the latest iPhone that just came out doesn't have a 5G radio in it. We are still a long, long way from prime time in my view. I do think something that is pretty interesting is Drillisch 1&1’s brand new license in Germany. By definition, a brand new telephone company will need infrastructure, and that might be interesting and disruptive. But it's incredibly complex, and so far wireless backhaul is not a massive part of our business.
TR: What new technologies do you see driving infrastructure investments going forward?
BR: I've got to believe that 5G technologies will be transformative; it’s just predicting how and when that is much more difficult. I've got to believe that the Internet of Things will be transformative, and that driverless cars will become part of our future, both of which will have a massive data requirement. We actually do have a couple of automotive clients who are deploying bulk fibre solutions. But even if you just follow how Uber's story of how the role of driverless cars has developed and not developed over the course of the last few years, there is a long way to go. So while there are movements in these areas, I'm not expecting my 2020 plan to be massively different from 2019. And that’s fine because 2019 has been a lovely year.
TR: What does the European network consolidation space look like today? Do you see opportunities out there?
BR: . One thing I know with absolute certainty is that if were to sit down and make 10 predictions at the start of every year, nine would always be wrong. The only one I would get right would be, "I don't think 5G will be as important this year as everybody thinks it is." I don't know what Digital Colony and EQT buying Zayo means or whether they have an appetite to invest in and add more stuff in Europe. There's a lot of speculation that a big Fiber company will come to the market at some point in 2020. I don't know whether that's true or not, but if it did it would be a big transaction. The European market has become so fragmented, unlike America where consolidation has already taken place. In Europe every country has a different initiative, and there are huge cheques being written by private equity companies in each space. This could represent an opportunity for consolidation of the industry.
euNetworks is going to stay hyper-focused on internet infrastructure because we understand that. Traffic doubles every year. A few years ago it was doubling from 32 to 64, and now it's doubling 320 to 640. It may be the same math, but it's a shedload more fiber. But if we do think that there is an opportunity to consolidate that can create a great deal of value, I'm sure we would look at that appropriately.
TR: And with Stonepeak as your backer, you have the resources to make a move if the opportunity arises?
BR: We do. Whether it's the right price and the right time will always depend on the business case that's in front of us. But I think if I needed access to significant capital because a consolidation opportunity availed itself, I'm confident that's something we could put together.
TR: Are infrastructure funds and companies backed by them the dominant buyers of infrastructure assets out there right now, or is there still room for strategic buyers and other players in the market?
BR: I think there is the potential for strategic buyers, and it wouldn't surprise me to see one of the big funds make direct investments. The right buyers are, for want of a better description, slow money with longer time horizons and a lower capital cost, because these builds absorb a huge amount of capital and the paybacks by definition tend to be longer. It’s still a great businesses, but it doesn't feel like a business you get in and out of in 2-3 years having created a lot of organic value. You might do that by cramming some businesses together, shutting down some head offices and letting some people go, but in terms of building a long-term business it becomes more like an annuity. Infrastructure investors are very keen on this.
TR: How has the never-ending process of Brexit affected your business, if at all?
BR: Brexit. Brexit. Brexit. When people ask me what I think I just say, “Our company is called ‘euNetworks’. What do you think I think?" Honestly, though, the biggest impact on our business since the Brexit vote has not been Brexit. It has been the clamor for data sovereignty. And that has been a great thing for us because when a customer that was going to have 2 Western European clusters ends up with 12, that means lots more bandwidth. However, if I look at how many talented foreign nationals work in our offices now and how we might replace them if they have to leave, well, I worry about that a lot. We run Finance for the whole of Europe out of London. If we don't have the free movement of people, that could be a challenge. But I'm speculating because we have still yet to see anything which says Brexit means this. We've got national companies everywhere we are, so we can buy and sell in every place, so I don't worry about that. I'm not worried about the logistics bit. I'm not worried about food running out in the supermarket. When I drive on the motorway I see the signs saying, "Make sure you're ready for the 31st of October" and I look up and then think, "How? What? What do you want me to do?" But I don't think that Brexit has impacted our business to date. I haven't seen a slowdown of investment.
TR: Thank you for talking with Telecom Ramblings!
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