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Tomorrow’s carrier-neutral operators to integrate tower, fiber and data center assets

MTN Consulting segments the carrier-neutral network operator (CNNO) market into three parts based on asset focus: towers, data centers, and bandwidth (fiber). These dividing lines have always been imperfect as there is some ownership across asset category. Some of that crossover has come from M&A, as for example with tower specialist Crown Castle’s 2017 acquisition of Lightower and its vast fiber network. Some has come from incremental expansion of business models, as with Zayo building small cells on top of its fiber network, or Equinix’s investment in data center interconnect optical networks. Some has resulted from a telco spinning off multiple types of infrastructure at once, creating a new entity like the Uniti Group with holdings across fiber, towers, and data centers. Private equity investments across sector boundaries has also driven some of the integration, a trend which is accelerating now thanks to Digital Bridge, GI Partners, Macquarie and others.
Looking forward, MTN Consulting expects the CNNO market to be driven by entities with holdings across all three types of infrastructure. Publicly held and private equity-controlled CNNOs will seek to offer integrated “digital infrastructure” to communications network operators, with a focus on the telco and webscale markets as their primary customers. One of many reasons for this integration is the challenges faced by today’s CNNOs: high levels of debt, weak cash flows, declining tenancy ratios in the tower sector, and the emergence of a need for data center and fiber buildouts at the network’s edge. There will continue to be many niche CNNOs focused on one specific type of asset, or two (e.g. towers and fiber), but the economic logic for a more integrated offering is compelling. The new breed of CNNOs will compile some of their network by M&A, as they always have, but there will be significant new investment in network expansion, especially in the data center and fiber space.
There will be challenges faced by the integrated CNNO, to be sure. The skillsets, software, and supplier relationships involved in building and operating towers, data centers and fiber networks vary widely. However, customer needs will drive this integration, along with the realities of scale economics...
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Matt Walker
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