DECEMBER 29, 2010 Fiber-Optic Networks Regain Some Glow Data Traffic Turns Regional Operators Into Buyout Targets
By SHAYNDI RAICE Wall Street Journal http://online.wsj.com/article/SB10001424052970204467204576048110913769584.html After the telecom bubble burst a decade ago, fiber was a dirty word. Now, the fiber-optic network business is enjoying a resurgence, particularly for metro fiber, the high-capacity lines that connect a city's office buildings, data centers and cellular towers to the Internet. There have been 14 acquisitions in the industry this year alone and 45 since the fiber market began its turnaround in 2006, according to investment bank Cowen & Co. "There's a shortage of metro fiber, and the demand is just going through the roof," said Rob Shanahan, chief executive of Lightower Fiber Networks, a fiber company serving the Northeast that has acquired five other companies since 2008. "The past couple of years, we have seen demand accelerate like I have never seen in the 20 years I've been in the industry," he added. Data-heavy devices like Apple Inc.'s iPhone and iPad have put growing strain on cellular networks, particularly the connections between cell towers and land-based networks, where bottlenecks often form. Meanwhile, Web video services, such as those offered by Netflix Inc., and so-called cloud computing, in which data are stored off site and accessed via the Internet, are placing a premium on fast connections. While there is a still an abundance of the long-haul fiber that connects cities to one another, there is an increasing demand to replace slower copper cables with faster fiber in much of the "last mile" of the Internet—the direct connections to users. Private-equity investors have been piling in, and the price for metro-fiber companies has shot up. Gillis Cashman, a partner at private-equity firm M/C Venture Partners, said buyers were paying five to seven times a metro fiber company's cash flow in acquisitions from 2007 to 2009. These days they are paying more than 10 times, he said. In December, Court Square Capital Partners bought Fibertech Networks in a deal valued at more than $500 million after the company had put itself up for sale earlier in the year. Fibertech, based in Rochester, N.Y., serves 24 American cities in the Eastern and Central regions. The deals have turned a market that once had many small participants and a few giants into one made up of a handful of regional and national players. Analysts say the consolidation has helped stabilize the prices fiber owners can charge customers like banks, phone carriers and universities that lease their networks. There are few small fry left to acquire, but some in the industry expect consolidation among some of the larger companies over the next few years. Companies also could decide to test the public's appetite for fiber. Zayo Group, one of the nation's larger fiber companies, with networks in 27 states and the District of Columbia, is weighing the possibility of an initial public offering next year, in addition to other funding or merger options. That could be tricky. Fiber-company executives and private investors say the industry's reputation still is tarnished by the tech bubble in the late 1990s, when investors pumped money into fiber companies, many of which ended up in bankruptcy court after a glut developed. "People lost so much money during the meltdown that most investors did not want to touch fiber-based" telecom, said Dan Caruso, CEO of Zayo. He formed Zayo in 2007 with about $280 million from private-equity backers led by M/C Ventures and Columbia Capital. "We saw that as a great opportunity," Mr. Caruso added. Zayo has since acquired 15 smaller fiber companies in deals valued anywhere from $3 million to $100 million. In June, it bought American Fiber Systems, a metro fiber company with lines in underserved cities like Boise, Idaho, Salt Lake City, and Reno, Nev., in a deal valued at $100 million. Mr. Caruso was a former CEO of ICG Communications, a publicly traded fiber company burdened with $100 million of debt. He led a buyout of the company in 2004, funded by Columbia Capital and M/C Ventures, for $8.7 million. In 2006, they sold the company to Level 3 Communications Inc. for $170 million. John Purcell, chief executive of Fibertech, said his company has seen connecting cellphone towers grow from 5% of its business to 20% in the past three years, largely led by growing data use. "We are the beneficiary of that," he said. Read more: http://online.wsj.com/article/SB10001424052970204467204576048110913769584.html#ixzz19cmm0va7 -- ======================================== George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 Mail: antunes at uh dot edu _______________________________________________ Medianews mailing list [email protected] http://lists.etskywarn.net/mailman/listinfo/medianews
