Hunter Newby, the CEO of fiber company Allied Fiber, believes the policies of the Federal Reserve Bank of the United States are impeding investment in telecom infrastructure — and it may be creating a crisis in the world of “dark fiber.”
Dark fiber is the building block of networks. It’s fiber cable that has been laid in the ground but not yet “lit” by being connected to networking equipment and services. Think of it as a digital Interstate system. Newby says that Fed’s 0% rate policies have driven money into other asset classes and diverted money away from more challenging infrastructure projects, which have longer term benefits. He says we need a more aggressive national fiber infrastructure policy.
His arguments make sense. Investment in infrastructure can have beneficial results. Recently the Rayno Report published research results showing that investment in gigabit broadband can boost GDP. I’ve also written here about the puzzle of the plummeting money velocity: Since the Fed has implemented 0% interest rates and injected $4 trillion into the banking system, money velocity has collapsed. See the chart below from the St. Louis Fed, for proof.
What does this chart represent? As money is being pumped into the financial system by the Fed, it’s being hoarded rather than being lent back out. This is why the economy feels more sluggish than the stock market leads you to believe. The banks would rather just use the money to trade than lend it to businesses.
Newby says that banks are especially reluctant to lend money to network and telecom infrastructure, because these are longer term projects and the money men can currently make better money elsewhere on quick flips, arbitrage trades, and private equity deals.
“Everybody has spent billions of dollars in network infrastructure all over the world, but we’ve spent nothing in 10 years,” says Newby. “Now we need to talk to talk about the Fed. Money’s broken. The thing that will grow GDP the most is an investment in network infrastructure.”
Newby says that dark fiber is becoming harder to come by for this purpose. He paints a picture of of these digital highways becoming protected fortresses owned by powerful private entities such as Verizon and Google. The larger telcos and private tech companies are hoarding the fiber, says Newby.
“All these fiber assets have been locked down. Is there fiber in the ground? Is it readily available? No. There aren enough entities like Twitter that want their own dark fiber, but there’s not enough of it. There are a single digit number of carrier networks that have national coasot-to coast fiber. “That really sucks,” says Newby. “Especially since the United States bailed out the world.”
Newby’s talking his book, of course. Allied Fiber provides “neutral” dark fiber infrastructure that connects telecom hotels, data centers, and metropolitan fiber rings. But it’s an impressive rant and a legitimate debate.
Is it true? Hard to tell. The cold, hard number show that optical investment has bounced back to almost peak levels attained during the 1999-2000 telecom boom. Deployment has reached almost 20 million optical miles per year, according to the CRU Group. That’s nearly double what it was in 2008. But Newby’s argument is all this fiber is owned by large telecom oligopolies such as AT&T, Comcast, Google, and Verizon.
Maybe the telecom economy reflects the real economy: It looks great for the 1%ers, but less so for others. Wall St. Journal reports back this up. It does seem that fiber and broadband is increasingly concentrated into the hands of the few.
On the national policy front, I think many telecom experts would agree there needs to be a more comprehensive national strategy to build out fiber infrastructure. Would love to hear what both telecom industry and finance folks think about this: Please email me at email@example.com.