What Revenue-Per-Mile Metrics are Relevant for Fiber Transport Providers?

As Zayo Group weighs a purchase of Crown Castle fiber connectivity assets, some observers believe Zayo’s fiber assets might be worth close to $5 billion. Some might argue that is a reasonable price, assuming annual fiber revenue in the range of $1.5 billiion, representing a revenue multiple of 3.3 .

Other recent transactions have featured higher multiples.

It might be hard to compare the value of those fiber assets--which are mostly metro area connections useful for cell tower data transport--compared to assets of other fiber asset owners whose portfolios might be more heavily weighted either to long-haul transport or retail internet access service, including retail end user connections rather than business-to-business revenues. 

Of course, some might argue that the value of Crown Castle's annual transport revenue is greater than the direct revenue, either for strategic reasons or using different methodologies for estimating value and revenue.

Route miles are different from fiber miles, for example. Different fiber-basesd services also have different profit margins.

Service Type	Description	Profit Margin
Long-Haul Transport	Fiber connections over long distances.	40% - 50%
Local Access Transport	Metro fiber connections for local access.	30% - 40%
Dark Fiber	Unlit fiber available for lease.	60% - 70%
Lit Services	Operational fiber services (e.g., Ethernet, Wavelength).	40% - 55%
Data Center Interconnection	Connections between data centers.	50% - 60%
Enterprise/Business Connectivity	Services for businesses (e.g., MPLS, IP VPN).	25% - 35%

As a high-level estimate, some might argue that different service providers also have different revenue-per-route-mile profiles, with Crown Castle, whose footprint is weighted towards local access revenue and connections, might have among the highest revenue-per-mile profiles. 

Company	Local Fiber Route Miles	Local Transport Revenue (Annual)	Revenue per Mile (Annual)
Crown Castle	80,000+	~$2 billion	~$25,000
Lumen Technologies	190,000+	~$3.5 billion	~$18,400
Zayo Group	133,000+	~$2.8 billion	~$21,000
AT&T	250,000+	~$4 billion	~$16,000
Verizon	200,000+	~$3.7 billion	~$18,500

Combined revenues (long haul, metro and retail local access provide a different picture, generally suggesting that local connections generate more revenue per mile. By some estimates, Crown Castle's long-haul revenues are somewhere in the middle of suppliers.

Company	Long-Haul Fiber Miles	Long-Haul Transport Revenue (Annual)	Revenue per Mile (Annual)
Lumen Technologies	400,000+	$6 billion	~$15,000
Zayo Group	130,000+	$2.5 billion	~$19,000
Crown Castle	30,000+	$0.8 billion	~$26,700
AT&T	500,000+	$4.5 billion	~$9,000
Verizon	400,000+	$3.8 billion	~$9,500
Colt Technology	20,000+	$1 billion	~$50,000
Telia Carrier	60,000+	$1.2 billion	~$20,000
GTT Communications	80,000+	$1 billion	~$12,500

Data Center Capacity to Double Over the Next Four Years

Amazon, Microsoft and Google now represent 60 percent of all hyperscale data center capacity, while doubling their capacity over the last four years, says Synergy Research. The firm expects total hyperscale data center capacity will double again in the next four years.

Synergy Research sees non-hyperscale colocation data centers accounting for 22 percent of worldwide capacity, with on-premise data centers rounding out 37 percent of the total. 

source: Synergy Research

In turn, that capacity drives demand for connectivity as well, as a huge portion of global long-haul capacity is used to connect data centers. Estimates peg the percentage of “data center to data center” capacity between 30 percent to 50 percent of total. Add in connections to internet points of presence and as much as 75 percent of total global backbone networking capacity connects data centers with other data centers and internet points of presence. 

Category	Global Capacity
Data Center Interconnections	30-50%
Internet Points of Presence (PoPs)	30-40%
Enterprise Networks	10-15%
Other	5-10%

The advent of artificial intelligence is likely to drive capacity trends. 

The AI "data center to data center" interconnection services market is expected to grow from $4.2 billion in 2023 to $9.1 billion by 2027, a CAGR of 16.8 percent, according to analysts at Gartner.

Gartner also forecasts the overall "data center to data center" capacity market is forecast to grow from $48 billion in 2023 to $72 billion by 2027, a CAGR of 10.6 percent.

According to IDC, the AI-driven "data center to data center" interconnection services will account for 22 percent of the total "data center to data center" capacity market by 2025, up from 15 percent in 2023.

The global "data center to data center" capacity market is projected to reach $64 billion by 2025, growing at a CAGR of 12.7 percent from 2023, IDC also believes.

Forrester researchers believe the market for AI-enabled "data center to data center" interconnection services will grow at a CAGR of 19 percent from 2023 to 2027, reaching $8.5 billion by 2027.

Forrester also estimates the overall "data center to data center" capacity market will grow at a CAGR of 11 percent from 2023 to 2027, reaching $68 billion by 2027.

Markets and Markets predicts the AI "data center to data center" interconnection services market will grow from $4.6 billion in 2023 to $10.2 billion by 2027, at a CAGR of 17.3 percent .The global "data center to data center" capacity market is forecast to grow from $51 billion in 2023 to $78 billion by 2027, at a CAGR of 11.2 percent, the firm says. 

The point is that if data center capacity keeps doubling every four years, then  “data center to data center” connections are going to grow as well. The issue is “how much” growth will be needed and how long the trend might last.

How Big a Market for AI Data Center Interconnection?

Lumen Technologies has announced it will receive 10 percent of Corning’s total optical fiber production for a period of two years, to support additional capacity supporting “data center to data center” connections supporting artificial intelligence operations. 

The additional fiber is said to double Lumen route miles, but also support an order of magnitude expansion of “inside the data center” optical connections as well. Some might say the new move supports Lumen’s earlier move to emphasize its private connectivity fabric.

And while estimates vary, all observers would note that Lumen is a major provider of public optical networking services in the U.S. market. By some estimates, Lumen is the largest supplier. 

Optimists might say the new effort to create capacity connecting AI data centers is “new business.” Skeptics might say it is simply the evolution of the existing business. But Christopher Stansbury, CFO, says the new AI-related deals are “largely all incremental.” 

“This isn't cannibalization of legacy at all,” he notes. 

Research FirmAI "Data Center to Data Center" Interconnection Services (Capacity) ForecastOverall "Data Center to Data Center" Capacity Market ForecastGartner

The AI "data center to data center" interconnection services market is expected to grow from $4.2 billion in 2023 to $9.1 billion by 2027, a CAGR of 16.8 percent, according to analysts at Gartner.

Gartner also forecasts the overall "data center to data center" capacity market is forecast to grow from $48 billion in 2023 to $72 billion by 2027, a CAGR of 10.6 percent.

According to IDC, the AI-driven "data center to data center" interconnection services will account for 22 percent of the total "data center to data center" capacity market by 2025, up from 15 percent in 2023.

The global "data center to data center" capacity market is projected to reach $64 billion by 2025, growing at a CAGR of 12.7 percent from 2023, IDC also believes.

Forrester researchers believe the market for AI-enabled "data center to data center" interconnection services will grow at a CAGR of 19 percent from 2023 to 2027, reaching $8.5 billion by 2027.

Forrester also estimates the overall "data center to data center" capacity market will grow at a CAGR of 11 percent from 2023 to 2027, reaching $68 billion by 2027.

Markets and Markets predicts the AI "data center to data center" interconnection services market will grow from $4.6 billion in 2023 to $10.2 billion by 2027, at a CAGR of 17.3 percent .The global "data center to data center" capacity market is forecast to grow from $51 billion in 2023 to $78 billion by 2027, at a CAGR of 11.2 percent, the firm says. 

Either way, “data center to data center” connections are an important niche or segment of the capacity business, including sales to third party customers as well as captive capacity owned and operated by hyperscalers including Alphabet, Amazon and Meta, which consume much capacity to support their own operations. 

Though it is virtually impossible to know with great precision, most estimates of active traffic on global long-haul networks point to the importance of “data center to data center” connections as a percentage of total active connectivity. For example, broad consensus seems to exist that between 30 percent and perhaps as much as half of active capacity now is used to support connections between data centers and other data centers. 

By definition, that data center traffic is all enterprise or wholesale, while traffic between internet PoPs might be either retail or wholesale; consumer or enterprise. 

Category	Global Capacity
Data Center Interconnections	30-50%
Internet Points of Presence (PoPs)	30-40%
Enterprise Networks	10-15%
Other	5-10%

The contribution of AI data center interconnection to Lumen financial results remains to be seen. But it is an important segment of the connectivity business and among the largest segments.

Is "Fair Share" Really Necessary?

Ignoring for a moment the arguments about network interconnection principles and existing policies that have internet domains compensating each other for unequal traffic flows, do telcos really “need” so-called “fair share” payments by a few hyperscale app providers?

Nobody likely disputes the challenge of monetizing continual investments in capacity, on either mobile or fixed networks. In competitive markets, payback is a challenge. But even so, the industry’s own data suggests there is not an urgent business model problem. 

Industry sources might argue that profit margins and revenue growth rates are lower for mobile and fixed network telcos than in the average of all other industries.

According to GSMA Intelligence, the average net profit margin for telcos globally was 14.1 percent in 2022, lower than the average net profit margin for all industries, which was 16.9 percent. Likewise, GSMA Intelligence says the average revenue growth rate for telcos globally was 2.2 percent in 2022, lower than the average revenue growth rate for all industries, which was 4.2 percent.

Critics might simply point out that the telecom service provider business always was a slow-growth, utility-like industry. So low growth rates are not new, nor a surprise. Lower profit margins than “average” also are not a surprise. Each industry has a different growth rate. 

And capital-intensive industries, whether generally considered utilities or not, generally have lower profit margins. 

Industry	Revenue Growth Rate (2022)	Capital Intensity
Telecommunications	2.2%	High
Electrical Power	3.4%	Very High
Natural Gas	3.8%	High
Wastewater	2.9%	Medium
Airlines	2.1%	High
Railroads	1.9%	Very High
Shipping	2.5%	Very High

So yes, connectivity service provider revenue growth rates are low.  But so are growth rates for other capital-intensive industries. Generally speaking, industries with less capital intensity also tend to grow faster. 

Industry	Revenue Growth Rate (2022)
Technology	6.5%
Healthcare	5.2%
Financial Services	4.8%
Consumer Discretionary	4.3%
Consumer Staples	3.9%
Industrials	3.6%
Energy	3.4%
Utilities	3.2%
Materials	3.0%
Real Estate	2.8%
Telecommunications	2.2%

Also, with the caveat that growth rates and profit margins can vary substantially between suppliers in different segments of the market, profit margins are not unusually low for service providers in any region. 

Slow revenue growth, as noted previously, has been--and remains--characteristic of telecom services, as is generally true for many other capital-intensive industries. 

Region	Telco Net Profit Margin	Revenue Growth Rate
North America	12.2%	1.8%
Europe	13.5%	1.9%
Asia	15.6%	2.5%
Latin America	12.8%	2.1%
Africa	9.3%	1.7%