The big fiber rollup is coming – the question is when

With billions of dollars both public and private on the table, new fiber players are springing up left and right. Some are small, rural telcos who have decided to make the technology leap from DSL. Others are entirely new entrants targeting strategic pockets of certain states, as Wire 3 is doing in Florida. It seems almost impossible that all will survive in the long run. But is the fiber industry destined for a rollup akin to what’s already been seen in cable and wireless? And if so, when will it happen and who will be doing the buying?

By all accounts, the answer to whether there is a rollup coming is a resounding “yes”.

Recon Analytics founder Roger Entner and New Street Research’s Blair Levin both told Fierce consolidation is absolutely coming. AT&T CEO John Stankey seems to agree. At a J.P. Morgan investor conference in May, he argued that for many smaller fiber players “their business plan is they don't want to be here in three years or five years. They'd like to be bought out and consumed by somebody else.” And answering a question about rollups on a recent FierceTelecom podcast episode, Wire 3 CTO Jason Schreiber said “it seems inevitable in any majorly fractured industry.”

But the question of when consolidation might begin in earnest is a bit more complicated.

Entner contended that at least for rural telcos, the question centers on how much fight they have left in them. Since these smaller companies likely don’t have dedicated build crews or other key equipment to hand, they “have to find muscles they haven’t moved in decades” if they want to upgrade their networks to fiber. These operators, many of which are family-owned, have to decide if they want to invest the time and effort in an upgrade or just sell off their assets so their owners can retire.

The upside is “if you’re a small rural telco, it’s a relatively low risk game,” Entner said. Because of demand for fiber, “someone will buy them” regardless of which path they take. It’s just a matter of how much payout they get.

Meanwhile, Levin predicted deal activity will likely begin ramping after the wave of federal money coming down the pipe is allocated. That’s in part because it’s hard for companies to both focus on buying assets and applying for grants at the same time. Once deals do begin to take priority, though, Levin said the focus will be on “how do you get a contiguous footprint and how do you get scale.”

Levin noted there should be a clear regulatory path for those looking to buy up competitors operating in different areas. These are known as geographic expansion mergers and “traditional antitrust law would say no problem” because such deals don’t result in consumers having fewer choices, he said.

Ultimately, “I think we’re going to end up in a situation similar to the cable industry in which there will be three, maybe four, maybe two very large wired players that cover in aggregate 70 to 85% of the country,” he said.


The next logical question is, if there is a rollup, who will be doing the buying? Levin said he doesn’t see the AT&Ts, Verizons or Lumens of the world biting. He pointed to tier 2 providers like Frontier Communications and private equity firms like Apollo Global Management (which owns Brightspeed) as more likely candidates.

Entner came to a similar conclusion, noting it is tier 2 companies – especially venture capital-backed tier 2s – who have expressed an interest in acquisition activity.

“It will continue until it comes to a sudden end. It depends on how the economy turns and how interest rates flow, but right now there’s still a ton of money sloshing around in the system,” Entner said. The coming years are set to be a “feeding frenzy and the larger you are the less likely it is that you become the food.”


Editor's note: In the interest of full disclosure, Levin told Fierce he is an investor in a privately held fiber company, but does not own stock in any publicly traded company that he provides Wall Street analysis around.