Dark Fiber is A Hot Commodity for Data Center Investors

Dark fiber is a hot commodity, as cloud computing platforms seek more network capacity to deliver data across their massive data center campuses. Over the past year, investment firms with data center holdings have been acquiring dark fiber specialists, who provide the connective tissue for fast-growing hyperscale customers.

The cloud cluster in Northern Virginia is the focal point of the M&A activity, most recently with IPI Partners buying a majority position in Dark Fiber & Infrastructure (DF&I), which operates a fiber network in Virginia and Maryland.

Dark fiber is unused fiber optic cable that has been installed in underground conduits but not yet “lit” by connecting to network hardware and software that allows light to pass through the cable to carry data traffic. This dark fiber can be leased to add capacity on major fiber routes.

The recent deals highlight the strategic importance of dark fiber to support the movement of data traffic. A number of companies have emerged to target this opportunity by deploying new dark fiber routes connecting major data center hubs. Hyperscale players also build out their own networks, as we were reminded last year when Facebook  The began selling unused capacity to other companies, effectively entering the wholesale fiber business.

This trend also illustrates how investors are sharpening their focus on multi-sector strategies that spread investment across the entire spectrum of digital infrastructure assets, including data centers, telecom towers, wireless antennas and fiber.

Data Centers and Dark Fiber: Perfect Together

IPI Data Center Partners is a major investor in the data center industry, and is best known for its creation of wholesale data center provider STACK Infrastructure, a wholesale data center provider. IPI is backed by Iron Point Partners and Iconiq Capital, a wealth manager to Silicon Valley clients.

Several other recent industry transactions feature a similar model of a data center investor buying a dark fiber network specialist.

• Last year SDC Capital Partners acquired a majority stake in Summit Infrastructure Group, an experienced player in the fiber scene in Northern Virginia with more than 500 miles of fiber routes. “Summit has built a highly differentiated network infrastructure in the world’s largest data center market,” said Todd Aaron, Managing Partner of SDC Capital, an affiliate of Sentinel Data Centers, which has several data center campuses in the Ashburn market.  Previous lead investor Columbia Capital retained a material ownership stake in Summit IG,
• In early 2019, colocation company Cologix bought Montreal-based Metro Optic, which provides diverse dark fiber capacity between data center campuses for hyperscale customers in the fast-growing Quebec cloud market. “This acquisition allows us to maximize the value and efficiency of our Montreal footprint by offering Hyperscale capacity, access to robust interconnection hubs and now also the underlying infrastructure to connect those entities,” said Bill Fathers, Chairman and CEO of Cologix.

IPI’s interest in DF&I was boosted by its use of the Potomac River Crossing fiber network to connect Northern Virginia’s “Data Center Alley” to a major Northeast U.S. telecom corridor. Future funding will be used to expand DF&I’s reach to new U.S. markets.

“This investment allows us to achieve our vision of being the partner of choice for hyperscale dark fiber and dedicated conduit networks in each of the markets where we have a presence,” said John Schmitt, co-founder of DF&I with partner Judd Carothers. “Our infrastructure in Northern Virginia and Maryland establishes us as the largest open access network currently available for lease in the region. We intend to move aggressively to further build specific network infrastructure that provides diversity, latency improvement, and scale that is required but not available in the market today.”

“IPI’s understanding of our business and the broader needs of our customers make them the ideal partner as we look to translate our success in Northern Virginia and Maryland to new regions ahead of hyperscale growth,” said Carothers.