Artificial Intelligence (AI) is already causing an explosive need for data center capacity and, with it, demand for Bandwidth Infrastructure is increasing.
Quantum technology will soon plunge into our world with a forcefulness that will spark another societal revolution. It will collaborate, not compete, with AI, causing an exponential explosion in Bandwidth requirements.
Quantum computing will be dramatic in its own right, but quantum technology goes well beyond computing. Quantum sensing will spur a quantum Internet of Things that will span across quantum positioning systems, autonomous vehicles, and the discovery of rare minerals on Earth and beyond.
Quantum radio frequency will be the enabling technology for 7G mobile networks. Its ability to detect minute changes in radio frequency fields with greater precision will open up new bands of spectrum and unimaginable applications.
When the Internet was first commercialized, it ran on old-fashioned phone networks using copper and circuit switches designed to carry voice. Within its first decade, newly designed networks using fiber and Ethernet violently replaced the old technology. The same will happen with quantum.
Quantum communications and networking will enable quantum computers and sensors to connect natively to each other, meaning that information will remain in a quantum state as it traverses networks. Fiber will remain essential, though new fiber types that are more effective at carrying quantum signals might be introduced. Certainly, new photonics and chip technology will be required to support quantum networking.
AI and quantum together will enable robotics and augmented reality to find their way into our everyday world.
Starlink and soon Kuiper are revealing the increasing role of satellites in communications. These will complement, not replace, terrestrial fiber. SpaceTech, in general, will create large quantities of data and communications requirements that will put more demand on fiber networks to carry the load.
The future of Bandwidth Infrastructure is a bright glimmer of light.
The industry that was once just AT&T, and then exploded to hundreds of rivals, is now largely reconsolidated down to four major national providers: AT&T, Verizon, Lumen, and Zayo, with Zayo being the only pure play. All four are facing challenges with their Bandwidth platforms.
AT&T has the most modest presence in Bandwidth Infrastructure. The depth and breadth of its commercial fiber assets are materially less than those of the others.The statement excludes fiber assets that are primarily used to serve AT&T’s residential customers. Most of AT&T’s fiber is used to support its residential, wireless, and enterprise business. AT&T is not a major supplier of Bandwidth Infrastructure to external customers. AT&T’s stock price trades at near its thirty-year low, which is half of the high achieved during the Boom years.
Verizon has a vast reservoir of fiber assets. The combination of WorldCom assets, including WilTel, MFS, Brooks Fiber, MCI, and XO, along with the fiber it built on its own, puts its inventory at comparable levels to Lumen and Zayo. Yet Verizon has failed to develop a healthy Bandwidth Infrastructure business model, as evidenced by its $5.8 billion write-off in late 2023. Verizon’s stock price is near its fifteen-year low.
Lumen finds itself in a vulnerable position, with the risk of a bankruptcy filing remaining acute. In mid-2024, Lumen’s stock hovered just over $1 per share, which equated to a Market Value of only $1.3 billion. Lumen’s $20 billion in debt trades at a steep discount to its face value. Though Lumen has a few years before it is required to pay back its debt, it is unclear if a solution to its precarious predicament will be found. Lumen’s CEO, Kate Johnson, remains confident, as demonstrated by her purchase of a second tranche of $1 million of Lumen stock in 2024.In early August 2024, just as we were finishing the final edits to Bandwidth, Lumen’s stock soared to nearly $8 per share. The trigger was Lumen’s announcement of new contract revenue bookings of $5 billion, alongside active discussions of an additional $7 billion. Lumen’s disclosures inferred that Microsoft was a main customer and AI was a catayst.
CEO Kate Johnson explained: “To summarize what’s happening, the dramatic rise in AI innovation springs explosive growth in data center buildouts, and data centers simply have to be connected. . . . [W]e’re repositioning the company for the future in the growing market of AI.”
On the same August day, Lumen announced an agreement with glass manufacturer Corning Incorporated to procure a “substantial supply of next-generation optical cable.” Lumen positioned this “fiber-dense cable” as a technology that would support “major cloud data centers racing to stay ahead of AI workloads.” Zayo also reported record sales bookings—citing AI as a major driver.
Perhaps the critical role of fiber as digital infrastructure, the consolidation of the fiber industry, and the excess conduit that was deployed to house advanced generations of fiber technology are on the cusp of driving a valuation boom among the Bandwidth leaders.
Zayo, though in a stronger position than the others, faces its own challenges. At the time Zayo went private, Zayo had $2.6 billion of revenue with profitability of $1.3 billion. Four years later the revenue remained at $2.6 billion, while profitability declined to about $1.1 billion. The 50 percent profitability margin declined to 42 percent of revenue. Zayo’s indebtedness increased from $7 billion when it went private to nearly $9 billion in 2024.After Zayo was taken private, the new investors sold its data center business. $600 million of the proceeds were distributed to investors and lowered net indebtedness. Acquisitions and negative cash flow from operations increased net indebtedness.
In mid-2024, Zayo separated Europe from the North America business, presumably preparing to sell it and use the proceeds to reduce its debt.
An important difference is worth noting between Zayo relative to the others. AT&T, Lumen, and Verizon each have structural problems that are intertwined with their core businesses. These structural challenges compromise their abilities to execute their Bandwidth Infrastructure strategies. Separating their Bandwidth businesses from their core businesses is impossible for AT&T and Verizon and extraordinarily difficult for Lumen. In essence, these businesses are stuck in deep mud.
This leaves Zayo in a far better position, as it is the only pure-play, North America–centric national Bandwidth Infrastructure platform. Zayo doesn’t have the deeply rooted structural problems that are encumbering its rivals. Execution is the primary challenge, which is on the path to being addressed.
With AT&T, Lumen, Verizon, and Zayo distracted, might another national rollup pick up momentum? The next largest collection of fiber assets sits inside Crown Castle. However, the status of Crown’s Bandwidth business is not good. In late 2023 activist Elliott Investment Management concluded Crown’s entry into fiber was a colossal mistake, citing Crown’s lagging performance relative to its rivals, American Tower and SBA. CEO Jay Brown, who led Crown’s fiber rollup, was forced to resign, and Crown announced a comprehensive review of its fiber business. Two independent directors were named to its board by Elliott, one of whom was former Level 3 CFO Sunit Patel. Crown has hung a For Sale sign on its fiber business. Akin to Lumen, separating Crown’s fiber business from its core tower business will be very difficult.
Other material pockets of Bandwidth Infrastructure exist. Dave Shaeffer’s Cogent, which acquired PSINet for a pittance and purchased the fiber assets of Sprint from T-Mobile in 2023, could be a starting point for a fifth national platform. Lightpath, led by Zayo veteran Chris Morley, also has substantial fiber, which is mostly concentrated in Northeast assets. Significant pockets of fiber assets are buried in the distressed public companies Windstream and Uniti Group; they are on a track to be unified into one company. Other regional clusters of fiber assets remain independent. However, all of them combined would be about the size of Crown’s fiber business. And most have deep structural problems of their own. Another major rollup platform is possible but not likely.
One other possibility is a play by Big Tech. Significant fiber assets have been accumulated by Alphabet, Meta, and Amazon—and to a lesser degree by Microsoft and Apple. They have participated and, at times, spearheaded joint builds. The fiber has typically been used to connect important data center locations. Not unlike Amazon’s AWS play, one of the Big Five might reach the conclusion of owning a vast fiber platform as a strategic addition to its portfolio.Big Five refers to Alphabet (Google), Amazon, Apple, Meta (Facebook), and Microsoft. The Bandwidth platform could be viewed as a means of extending the Google Cloud, Microsoft Azure, or AWS platforms to the customers’ edge. AI, quantum, augmented reality, and robotics—all areas of keen interest by Big Tech—will drive an ongoing need for fiber. A $20 billion price for Zayo would be a drop in the bucket for Big Tech. Though unlikely, a bold move by one of the Big Five is plausible.
A leader of the Cable TV industry such as Comcast, Charter Communications, or Cox Enterprises might consider a move.
Lastly, T-Mobile is a plausible strategic suitor. Verizon and AT&T each own and operate dense fiber networks, with one of their major purposes being to provide Bandwidth connectivity to support their mobile services. T-Mobile, whose services now include providing wireless Internet access to homeowners, might determine that owning Zayo or Lumen might open up more opportunities to expand or differentiate their product offerings.
The most likely outcome, though, is Zayo regains its footing and continues on with its consolidation—with the acquisition of Crown’s fiber business being a leadership-cementing achievement—and relists as an NYSE or Nasdaq public company. In parallel, Lumen continues its slow crawl-back, perhaps enabled by a Chapter 11 restructuring, from its financial abyss. And perhaps before the end of this decade, Lumen and Zayo will merge into a mighty Bandwidth provider.