The hunger for acquisitions in fibre connectivity is gnawing at the industry amid a wave of deals involving strategic and financial players bulking up to support 5G.

The COVID-19 disaster, however, is being felt as mobile operators are expected to spend US$1.1trn globally for the rollout of the technology, mobile trade group GSMA recently noted. Its revised forecasts show that the number of 5G connections in Asia Pacific will be almost 20% lower in 2020 than previously expected because of the pandemic.

Amid this trend, the build-out of FTTH/B/P networks is continuing apace especially in North America.

5G will account for more than half of total mobile connections in North America, according to the latest mobile economy report from GSMA. Of the region’s forecasted total of 426 million mobile connections, 51% of these are expected to be running on 5G networks by 2025.

Fibre buying binge

At least nine acquisitions this year through July have shook the fibre connectivity sector. A US$14.3bn deal in 2019 by US-based Digital Colony and EQT Partners of Sweden to acquire US fibre provider Zayo helped set off the flood.

It remains to be seen if more sizable deals are on the way, but US fibre network provider Everstream is in a “process” involving a potential target in a Midwest state where it operates, CEO Brett Lindsey told Connectivity Business. He declined to elaborate. The company operates in more than a dozen markets in the region. In November Everstream spent US$135m to acquire existing companies from US REIT Uniti Group (NASDAQ:UNIT).

And Everstream is seeking to raise capital to fund deals with existing Australian investor AMP Capital, he said. The firm recapitalised the company in September 2018 for an undisclosed amount. Everstream in April also announced that it had secured US$342.5m in debt financing from nine banks.

Buyers are paying high multiples for their targets. UK infrastructure investment company Wren House Infrastructure Management paid an EBITDA multiple of 18x-20x for US-based i3 Broadband from Seaport Capital and Countrywide Broadband, for an undisclosed amount, Lindsey said. I3 is an FTTH operator providing gigabit-speed connectivity to residential and commercial customers in Illinois and Rhode Island.

Other recent deals have tallied EBITDA multiples north of 20x, he noted.

Rollup oriented private equity firms see the opportunity in the sector, including US private equity firm Grain Management. In January it bought FTTH/B provider Summit Vista, also for an undisclosed sum, one of three for the company since August 2019. Summit Vista operates a fibre network of more than 1,800 route miles in Florida.

Grain Management appears to be a PE with big plans for connectivity, focusing on five verticals: tower, spectrum, small cell, satellite as well as fibre. Its investment strategy includes targeting buys of direct assets or as part of structured equity plays in the US$50m-150m range primarily in North America.

Founder David Grain in 2002-06 served as president of towerco Global Signal, which then-rival Crown Castle (NYSE:CCI) acquired in 2007 for US$5.8bn including debt. He has also served as an AT&T (NYSE:T) SVP and executive director of Morgan Stanley’s high-yield finance business with a focus on TMT.

And a trend of PE interest in fibre might be developing as PE firm Oak Hill Capital Partners recently bought fibre and telecom network service provider Otelco, which operates in seven states of the US, for US$40.6m. The transaction is expected to close in Q4 2020.

Marketing of 5G is ramping up amid the build-out of fibre networks ahead of 5G.

“For us, it’s about turning up the sales effort,” Lindsey added. The company is planning a business-only fibre network with speeds up to 100 Gbps across the Midwest, recently adding 5,000 route-miles and launching service in metro areas that include Chicago, St. Louis and Indianapolis.

Thousands of route-miles of footprint are being laid, including by AT&T. The incumbent provider is building a “very deep” fibre network with a footprint in 21 US states, president Scott Mair said during the streaming Barclays Global Technology, Media and Telecommunications Brokers Conference on 9-10 December 2020. The company also owns fibre networks via acquisitions it has made, meaning it is “easy” to extend its network.

As AT&T pursues a strategy entailing the integration of fibre and wireless to deliver entertainment, it is seeing growth. The MNO in Q3 2020 said it had 350,000 fibre additions and activations of its HBO Max video streaming service, which launched in late May, more than doubled over its first full quarter. Now the company has 38 million subscribers in the US and 57 million globally, including HBO television service as well as HBO Max.

Farther afield and first of its kind in the geography, French telecoms incumbent Orange (EPA:ORA) in mid-November launched Djoliba, a pan-African fibre network of more than 6,200 route-miles coupled with undersea scale. It will connect the capitals of eight nations.

Several US communities are opting for hybrid fiber-coaxial networks with network infrastructure provider CommScope (NASDAQ:COMM) overseeing some of these.

In Europe, the push is to build fibre-rich and all-fibre networks for residential and business services and to prepare for 5G backhaul. Service providers want to level the playing field and eliminate the digital divide.

Dutch incumbent telco KPN (OTCMKTS:KKPNY) added more than 40,000 FTTH subscribers in Q3 2020, four times the rate of growth compared with the year-ago period. The takeover of customers from its discontinued Telfort brand and an accelerating FTTH rollout drove growth.

In late November EQT Partners and Belgium-based incumbent telco Proximus (EBR:PROX) announced they will form a joint venture to build an FTTH network in Flanders with the former holding a majority position.

Fibre-wireless integration

As the number of connected devices explodes, synergies between fibre and wireless communications are emerging, providing a kind of dynamo of connectivity. 5G base stations and small cells rely on fibre, Lindsey noted, and fibre will get a boost as the infrastructure aims for 10 gigabit a second communications platforms, a massive increase from the 1 gigabit offerings in the present.

AT&T is using its footprint of fibre to provide the infrastructure for consumer and business wireless communications.

“And so in a cell site environment, you basically [have] a one-to-one relationship,” Mair said. “I have one cell site, one set of equipment and one fibre and it [is] all self-contained.”

Adding fuel to the situation, technology giant Apple (NASDAQ:APPL) in October 2020 launched its iPhone 12 in four models, each with ultra-wideband capacity.