- Data center expansions are moving at the speed of light
- Fiber transport capex is in the billions of dollars but still a fraction of overall data center capex
- However, money for networking needs is hidden in the data center spend, Dell'Oro noted
The race is on to build more data centers to meet ever-rising cloud demand, and hyperscalers are dropping thick stacks of money to make it happen. Alphabet, Microsoft and Meta separately announced plans to spend a collective $215 billion growing their infrastructure in 2025 alone. While it has yet to report earnings, Amazon is expected to add another $75+ billion to that tally. Then there’s the $100 billion Stargate project.
But all of these efforts will require connectivity. And it’s worth asking whether investments from the likes of long-haul and middle mile players like Lumen, Zayo and Windstream (which merged with wholesale fiber provider Uniti last year) can keep pace with the data center boom.
Jack Gold, founder of analyst firm J. Gold Associates, told Fierce that there was a fair bit of excess fiber capacity floating around in the market in recent years. But he added “that era is over as more data centers come online and more and larger data sets are transported, potentially over long distances.”
“We often speak about electricity shortages due to insatiable data center demand/builds, but high speed and low latency interconnections are equally critical to maintaining performance,” he noted.
So, what do the major players’ network expansion plans look like?
Well, during its earnings call this week, Lumen outlined plans to spend as much as $4.3 billion on capex in 2025, up from $3.2 billion in 2024. CFO Chris Stansbury said the extra $1 billion or so will primarily go toward execution of the $8.5 billion worth of public cloud deals it has signed with hyperscale partners.
Insight into Zayo and Windstream’s capex plans is a little harder to glean, given both are private companies. Windstream declined to comment on its capex plans for this year.
However, Zayo recently set a goal to add more than 5,000 route miles of fiber to its network (including 2,7000 miles along new routes and 2,600 miles of overbuild) by 2030. This week, Zayo also revealed it secured $1.42 billion in asset-backed financing. That money will partly go toward expanding its network to serve fiber to “an increasingly diverse, blue-chip customer base across North America.”
Zayo also appears to be pursuing an expansion through the acquisition of Crown Castle’s fiber assets, according to a report from Reuters.
A different kind of prepper
The need for more networking bandwidth doesn’t exactly come as a surprise. Executives from Flexential and F5 were among those who last year warned that the network could become a scarce resource in the near future.
But data center expansion plans are even bigger and moving faster than expected. Can networks keep up?
Dell’Oro Group VP Jimmy Yu told Fierce hyperscalers don’t appear to be leaving that up to chance. In addition to buying from the likes of Lumen and Zayo, they’ve also spent the past several years building out their own networks to interconnect their data centers.
“Looking back over the past decade, I think hyperscalers were shifting from leasing capacity to building their own capacity. This is evident by the direct purchases of optical transport equipment from 2017 through 2024,” he said. “We report that direct purchases of DWDM systems grew at a 12% CAGR between those dates while spending by the rest of the market was flat. The amount of capacity installed was around 40% a year on average.”
According to Yu, hyperscalers will likely increase their own network spending in the coming years. He said Dell’Oro estimates that cloud providers spent $2 billion on dense wavelength division multiplexing (DWDM) systems for their network builds in 2024 and that’s expected to surpass $3 billion by 20209.
They’re also ramping spending on optical plugs for their networks, with sales of coherent pluggables (aka ZR and ZR+ kit) for transport coming in at an estimated $600 million last year. That number is expected to double over the coming years, he concluded.