The global market for fiber infrastructure is exploding. This is fueling a rise in specialized fiber companies including telcos who are now separating off their fiber business to increase market value. To succeed, legacy IT systems must be replaced with a lean, cloud-based IT environment.
As excitement grows around the potential of 5G, it’s tempting to think that the world of ‘wired’ connectivity is being left behind. Quite the opposite. Fiber build-outs are increasing at a rapid rate to meet Gigabit Society goals across the world. For example, the European Commission has declared its objective of 1 Gps access for education and transport sectors and at least 100 Mbps to reach all European households by 2025.
And the fiber builds are not just for FTTH. More fiber is needed to support the emerging deployments of 5G and edge compute to deliver new latency sensitive services or high throughput services in markets such as telehealth, VR/AR gaming, autonomous transport and more.
So yes, there is a high demand for fiber. Indeed, analysts say the global market for fiber-to-the-home/building will grow from $15.3 billion in 2020 to $31.3 billion by 2026.
And this is why many more companies are getting into this business, especially when there is government subsidy on offer. Specialist fiber providers have emerged to compete with the telcos – and from a valuation standpoint these hyper-focused rivals are winning. In 2021 Deloitte looked into the relative performance of traditional telcos against the specialists (fibercos, infracos, netcos and towercos). It found that in 2020, the traditional telcos were valued at 7x their annual operating margin. The specialists? Up to 20x.
For telcos, the obvious response to this new market reality is: if you can’t beat them, join them. As such some telcos have acknowledged the need to move away from a fully integrated business — doing and owning everything — towards more focused businesses that can adapt to the needs of their respective customers faster and become much more attractive to investors. This means separating or even spinning off their infrastructure/network assets into autonomous entities.
An early success story was CETIN, the separated infrastructure business of O2 Czech Republic in 2014. In 2019, TDC Group in Denmark split its infrastructure business into TDC NET and the service company became Nuuday. A year later, TIM launched Brazil FiberCo to focus on fiber roll outs, Vodafone spun off its telco tower assets into a new division (Vantage Towers) and Telenor established Telenor Fiber AS.
How does spinning off new divisions help telcos to monetize the fiber opportunity? One key reason is CAPEX investment. In short, funding partners are more willing to invest in a specialist fiberco with physical assets and high risk-adjusted returns than a ‘generalist’ telco. The reasons for this include:
Predictable revenue. Fibercos typically have a small number of wholesale customers on long-term contracts.
Resistance to competition. Fibercos own infrastructure which makes them less vulnerable to competition from cloud-based start-ups.
Low regulatory burden. With little or no exposure to retail markets, fibercos face fewer regulations than telcos.
Greater addressable market. A fiberco can work with companies that might be competitors of traditional telcos.
Management focus. Decision makers in specialist companies arguably have greater strategic clarity.
The new fibercos — whether unbundled divisions of telcos or greenfield startups — are now in a race to complete their build-outs to reach coverage goals. Customers are demanding it. So are investors.
How can they speed up? The answer lies with the IT environment. Simply put, fibercos need to be able to respond quickly to market needs, scale up or down capacity on demand, on-board customers fast and reduce costs (by automating previously manual processes and optimising network traffic).
Legacy systems simply cannot support these requirements. In the past OSS/BSS solutions were complex to build and highly customizable, but once live, systems didn’t need many changes. But the network environment is different now. Services are more dynamic, capacity is needed on-demand and fiber build-outs need to happen faster. Plus, a lot of cost needs to be driven out of the business to maintain good margins and attract more ISPs. For this the IT environment needs to be ‘out of the box’ and small to meet the initial business needs and then grows with the business.
We can summarise the necessary qualities of a new IT solution as follows:
Lean
Optimized BSS/OSS with functions specific to the needs of the fiber business. For example, only lightweight BSS systems are needed for wholesale customers — out-of-the-box functions with little or no customization.
Agile
Cloud-native and able to run on different platforms (whether Azure or AWS or even a telco cloud platform etc.) with DevOps automation and support for open APIs so upgrades can be easier in future.
Providing a real-time view
A single source of information for the whole network. Providing a multi-layer view of services, resources, inventory systems and infrastructure with detailed graphical and map views.
End-to-end automation
There should be secure multi-tenancy automation across all functions — such as network planning, ordering, on-boarding, revenue settlement, deployment and problem resolution. This is vitally important. An automated IT environment can convert a customer from lead to order, and then provision the order into the system — without manual intervention. It should even decide the best revenue settlement model.
As stated earlier, some fibercos are ‘greenfield’ with no existing IT environment. Others already have a solution in place. A good IT provider will have services for both. On the greenfield sites, this might be a slimline ‘minimal viable product’ that can be customized later (for local regulations etc). For the rest, the focus of the IT solution should be on business continuity — making sure that existing systems can be consolidated and eventually decommissioned when it makes sense.
