Fiber Providers Seeing 'Tailwinds' as Data Centers Rapidly Deploy
Hyperscaler buildouts offer a growing opportunity for fiber operators, but the market is still evolving, and providers should proceed with caution, executives said during an Incompas webinar Wednesday.
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The cost of building a new AI data center is huge, equivalent to the cost of building an aircraft carrier, said Bill Long, chief product and strategy officer at fiber operator Zayo. “The chokepoint for being able to monetize and to make money on the huge capital commitment they’re making is the fiber going into it.” Hyperscalers want to work with companies with a proven track record “at scale.” They also emphasize speed, he added: “It’s an all-out arms race now for a lot of the infrastructure” they’re building for AI.
But Long also urged fiber operators to exercise caution, especially in serving “Timbuktu locations.” Zayo is seeing demand for connectivity in remote locations that have access to a ready power supply, like West Texas and the Dakotas, he said. “The demand is big enough that if you happen to have a long-haul network” proximate to the data center, “it’s good business.” It may not be worth the cost of building a network to reach the location, he noted.
Not all the hyperscalers will last, Long predicted. “We’ve been in big macro tailwinds in the past where not all the players survived.” There are a lot of crypto miners with data centers “in the middle of nowhere,” he said, noting that he wouldn’t want to underwrite building fiber to those locations. Demand will increase, but it will also change, he said.
Gigabit Fiber CEO Tom Spackman said the market is “drastically evolving.” In 2005, a typical data center had a single fiber connection, while data centers today demand “at least three full diverse carriers … each with diverse entrances,” he said. “That’s going to grow,” and each site may demand five or six different vendors.
“That’s a very bullish trend,” Spackman said. “There’s still room to be able to scratch out a position in this market.” He added that he’s not sure why data center operators think they need so much fiber capacity. Growth will continue “at an exponential rate,” he predicted.
Fiber providers need to really understand the problem that hyperscalers are looking to address, said Kyle Hildebrand, Vivacity Infrastructure Group's chief revenue officer. Each hyperscaler is different, and their needs vary. “They want to be the customer when you’re working with them; they don’t want to just be another customer,” he said. “They want partners that are going to work on long-term thinking aligned with their thoughts. They want you to help them minimize risks.”
“If you understand their problem [they’re trying to solve], things are going to go a lot smoother and the relationship will mature a lot faster,” Hildebrand added. He predicted that more data centers will be located close to one another, and there will be a growing demand for backhaul to connect them.