The following transcript has been edited for length and readability. Listen to the entire discussion here on The Broadband Bunch. The Broadband Bunch is sponsored by ETI Software.
Pete Pizzutillo:
Hello, and welcome to another episode of The Broadband Bunch. I’m Pete Pizzutillo, and I am joined here by Hunter Newbie. He’s the owner of Newbie Ventures. Hunter, thanks for joining us today.
Hunter Newbie:
Thank you. It’s great to be here.
Pete Pizzutillo:
Yeah, we’ve got a lot to talk about in terms of all the things you got your hands in and some of the digital infrastructure investments that are out there. Before we get into that, it’d be really helpful to kind of dig into how you got here. I know you have a pretty interesting past, so how did Hunter end up here today?
Hunter Newbie:
Well, thanks. I’ll try to keep that as brief as possible, but I moved from Philly to Long Island in 1994, the week the Rangers won the Stanley Cup, and that’s how I got to Long Island. I started working in the late nineties with a company called LDDS WorldCom, which anybody in the telecom space is going to know that name. As I’ve said many times before, that’s where I learned how not to do everything, because if you just did the opposite of what they were doing, you’d be successful. That’s not disparaging the people that worked there. It was the setup of the company.
What I really learned inside that organization was about what’s called provisioning. Provisioning is really the essence of everything that I’ve done to solve interconnection problems. If you want to expand on what the definition of provisioning is, it’s how to get circuits actually interconnected and turned up, simply put.
I found that the majority of all circuits that were held up in all of New York City were coming out of one building, 60 Hudson Street. I decided to venture down there and see what that was all about. After being told I’m not allowed to go and I shouldn’t go, and no one’s allowed to go there, I went anyway and discovered a carrier hotel, which that’s what 60 Hudson is and how dysfunctional it was.
It took me a little while, but ultimately I figured out how to clean up the dysfunctionality at the physical layer then left WorldCom and ended up working with a great group of people in a different company that was originally buying and selling international Wholesale voice minutes back in those days in the late nineties, arbitraging origination and termination from countries all over the world through a switch that they had in 60 Hudson Street.
Then having to get connected between a myriad of international networks and domestic networks within the building, within different floors of the same building, and have to get local access circuits turned up between those floors. It took weeks, months, sometimes even years, just to get a circuit between two rooms on two different floors in the same building.
It was super challenging, but for me, just to be in the building and ride in the elevator, instead of having to take the railroad to the subway to go in there and try to figure out what was going on, save time and ultimately, the idea that came about, which is purely out of necessity, the mother of invention, was to talk to these other carriers that I was trading minutes with and get them to build directly into my room. Effectively, extend the demarcation point from their own network wherever their switch was in the building into my room.
Then I created a whole, I don’t know, the process for that and a model for that and product names and service orders and contracts. The whole business was born out of it, which is physical air interconnection without the use of local active circuits. Without having to use a third-party carrier to connect to long-distance carriers. Ultimately, what that became was a real estate business. It was managing the physical layer entrance of another carrier’s fiber, and ultimately, the equipment that they would connect to that fiber in my room.
Originally, it was within the switch room, we called it the switch room, where our actual, it was an Excel switch. It was a T1 switch. My gosh, it’s so long ago. Yeah, there was a certain science to it, certain organization, physics, chemistry, biology, to where the fiber came in through points of entry and how it was run on a ladder rack and where it terminated to a fiber panel and then where the equipment actually went in racks that had power.
Then where the actual extension of the circuits from that equipment ultimately, were terminated in panels in racks. This entire organization, this whole hierarchy became ultimately the business called Telex in 60 Hudson Street, which is pretty well known, at least in this industry, in this small corner of the world, as one of the pioneers of network-neutral interconnection. What does network neutral mean? Basically in the year 2000, the Telex Group Inc. was a holding company that was formed to basically hold the leases for the space in the building and the license agreements for the racks and space for the carriers that had co-located in our room. That was a whole new concept back then, like a whole new idea of networks co-locating in some other room for the purposes of just interconnecting with each other. Well, we were pioneers in that.
It was an amazing group of people. I had an amazing time. Now, On the heels of the Telecom Act in ’96 and the 214 carrier status, and all the investment in CLEC fiber that had happened even late eighties, but definitely throughout the nineties. There were so many disparate physical air networks that all needed to connect back to each other because no one network goes everywhere. Our Telex interconnection business carrier neutral or network-neutral, interconnection facility business was born out of that necessity. Then from there forward, it was really just how do we scale this business? How do we grow this business in the building, which we did successfully multiple times? There are some in-building cabling channel challenges and such, distance limits on certain circuit types on the same floor. That’s a whole city block for example.
Then more importantly, how do you scale that model from one city to another, to another, to another? Then I really focused on that, finding the other 60 Hudson Streets and owning the real estate because ultimately, owning the real estate was the key, because that’s all about control. When you have control, you could do what you want. That for me, was always about helping networks get connected.
Pete Pizzutillo:
To this day you’re still tracking the network-neutral connections. Why are you doing that? And how do you see that playing into today’s challenges that are in front of us?
Hunter Newbie
I’m still doing it, I guess because I have a passion for it, but because it works and it’s necessary, but point blank, it works in New York and it works in Atlanta, and it works in Chicago and LA and Seattle and Dallas, and I could name them all. I even wrote a whole series of articles on the carry hotels in North America, the Meet Me In Series, which is on my Newbie Ventures research site.
It works great for networks where those facilities are and the networks that are in them, but if you fast forward to today from back then 20 years ago, the rise of what’s called an internet exchange, which is an actual physical switch, an ethernet switch, for the purposes of connecting IP networks together more efficiently on a VLAN basis. That technology and that service function business type didn’t really exist in the United States back then was fledgling.
It was growing up really in Europe faster but regardless, that has become a core foundational building block of the internet itself. The largest internet exchanges in the United States reside within the very same Meet Me rooms, interconnection facilities that I profiled over 20 years ago. That’s all documented in my research series. Anyone can go and read it and look at the original articles and now the new research that I’m publishing, and it solves the problem when you look at the rest of the United States where there’s what’s called the Digital Divide and lots of people and companies, businesses, living in this digital divide without really good access to high speed, low cost, low latency internet access.
The reason why is that they don’t have an internet exchange, which means that the internet exchange doesn’t have a home to live in, which is effectively the network-neutral interconnection facilities that I’ve been designing and building for over 20 years.
There are other people in this space, no question about that. A lot of the deals that I was in and that were built up, I’ve exited to larger companies, whether it’s private equity or public companies, I’ve done all sorts of transactions. The fact remains that 14 states in the United States still do not have a single internet exchange point in them, 14. That’s data that I’ve pulled from an API that my developer built into what’s called PeeringDB. PeeringDB is the resource for all internet exchange points and internet exchanges in the world.
I had this API built to extract the data to map the internet exchanges in North America and to republish the research that I originally wrote the series for 20 years ago, which is what I’m in the process of doing. It’s highlighting not only where the internet exchanges are, but more importantly where they’re not.
Then I’ve mapped that by state to highlight to the governors and the broadband offices of the states what the problem actually is. It’s not about broadband, it’s not about fiber. Those are nebulous words really. If you’re investing billions of dollars nationally in fiber, locally, fiber to the home, where does it go back to? Where’s that fiber going from the home? Really, they need to understand network architecture and build neutral interconnection points, and bring professional, robust internet exchanges to those points. Then localizing content, cloud, gaming, and all the things that people and machines want to touch and see. That’s what makes the internet actually work, bringing the internet to you, instead of going to it, which is really where the latency and the cost come in.
Yes, I’m educating people, and I’ve been educating people about this for a long time, but I think it’s really important not just to do it, not just to build own, operate these facilities like I’ve been doing, but take the time to actually break it down and explain it to people, how it works. Then work with people that have a stake in it to create these facilities as they have in the big cities, and in the smaller ones, and make the playing field level.
Pete Pizzutillo:
I invite everybody listening to go check out the map. It’s really kind of eye-opening. Also, I do think the education, what Joe and I talk about on the show a lot is we kind of talk over at a Ph.D. level to some of the folks that are still figuring out how to run, walk, crawl, walk, run, I should say.
There are a lot of folks at the state and municipal levels that are trying to absorb all this information to make the best decisions. I do think the research series that you have is an important part of that education. I invite people to check that out and connect this to the world divide. Last week or a few weeks back, you announced a partnership with Connected Nation around the Connected Nation internet exchange points. Can you explain that relationship and what you guys are trying to do?
Hunter Newbie:
Sure, so the relationship with Connected Nation is a joint venture between the 501c3 nonprofit Connected Nation and one of the newbie ventures entities that I’ve created to work with them to build these neutral interconnection points, which is effectively modular co-location buildings. Some people call them data centers. I tend not to use that term because again, it’s a catchall phrase that sort of means so many things that it means nothing.
Imagine that is a building and together, we are working with universities predominantly and cities to bring internet exchange points to those places. We’ve announced the first five that we’re pursuing in that announcement, and these are very heavily diligent locations based upon data that Connected Nation has access to and that I also have access to. Together, we work together to understand population density, distance from an existing internet exchange, the lack of an internet exchange in that market, the rate per MEG that every school district pays, which Connected Nation knows in the whole country, latency, and many factors.
Then working with the state university there, the flagship university, they’re very interested in bringing the internet to their campus or in the case of Albuquerque, to their city, which is wonderful. It’s great to talk to people that understand the problem and that the solution is neutral real estate, not pouring more money just into the fiber. Fiber’s, great. Having that local internet exchange point to bring the fiber back to, that’s the missing piece.
With Connected Nation, I’ve known them now for about seven years. We’ve worked together, worked on a project together in Iowa for the governor, and were able to, Connected Nation was able to help a group of school districts reduce their cost of transit by 90%, which is staggering but true. Then from that point, that was around 2017, 2018. From that point, we said, let’s figure out how to actually work together to do this for the whole country and make it permanent, not just a contract on a piece of paper, but a physical place where this actually occurs so that it never changes. It doesn’t go back.
Once you introduce wholesale rates and multiple networks to connect to and appear with and exchange traffic. You want to make that in a neutral environment and you want it to stay that way for a long time. Yeah, the relationship with Connected Nation is fantastic. It’s really, I’m trying to help them fulfill their mission as a nonprofit focused on rural broadband for 22 years now in the United States, and what I know from the big cities and have been doing this over 20 years, I’m bringing to them because they’re the ones that have all the connections at the state level with the governors and then the broadband offices. They are the broadband office for a couple of states. And they work very closely with many of them, somewhere around nine or 10, 11 of them. They have connections in DC with all the congressmen and senators.
Really, we’re at a point in this country where this problem can no longer be ignored. This problem can no longer be passed off as just that somebody else will do it. The states that have a zero on the board right now relative to not having any internet exchange point really need to be the first dollar in at risk to sort of break the schneid and get one on the board. We’re here to help them do that. Other states, of course, are really large, and the geographic disparity there is so large that they need multiple Internet exchange points. Yep, we’re working together to address that problem. As I said, it’s mission fulfillment for Connected Nation and I’m really happy to be working with them on this.
Pete Pizzutillo:
Yeah, no, see, that’s a great background. I think you touched on a couple of aspects because the term, like a lot of the terms that we use, the private-public partnerships are thrown about. What does a successful model look like for you from the private side and as well as the public side?
Hunter Newbie:
Well, I’ve been at this for a long time. Private capital is interesting. It’s difficult at times. Private equity has a tendency to only see things that exist and they want to bind and have credit tenants or contracted cash flows in place, which I understand all of that. It’s really difficult when private capital has come into this space, the network-neutral interconnection space over the past decade-plus. They like the model, they like the model, they like the business, they like the investment. It produces great returns.
As soon as you go to a place where there isn’t anything like this, there’s this sort of amnesia, it doesn’t work. It just doesn’t exist or it can’t be done here because if it isn’t there, it’ll never be there because it isn’t there. That sounds good if you’re the private investor, but if you’re the governor of that state or if you’re a people that live in that town, or if you’re a business that’s from that town or that state where that you lack direct access to an internet exchange, that’s not a good answer.
That’s where the federal and state money comes in, and it’s not asking for something that’s far afield, quite frankly. Broadband grants have been around for a long time, but we just happen to be in the midst of the biggest one that’s ever existed. You have to ask yourself and compel them to ask the question, well, what are you doing with all this money? Where’s it going? What’s it going into?
I’m not suggesting that all of it should be allocated to internet exchange points, quite the contrary, a fraction of it, but you should really allocate some portion of it to building these facilities because they do exist in all the big cities. There is great benefit to those cities for having them because it has a direct impact on economic development and business growth and business attraction and all the things that the state economic development people talk about and want.
It just seemed very logical that this is the missing piece, and it should be on the docket for grant eligibility to receive funds. That was certainly the case in the Middle Mile grant that was just passed. The deadline was September 30 of last year, and now we’re heading into the Bead, which is more focused on the last mile fiber through Connected Nation have spent some time talking to people in the states and NTIA about the language in the grant and trying to emphasize the fact that this is a very relevant, very real present today network element, network infrastructure element for the internet in many places. It should be grant eligible.
Then I’m open to working with anyone on the local side, local fiber network operators love internet exchange points. It’s just that they don’t do it, that’s not their business, but they would love to be able to connect to one locally. Bridging those two things, I think really, and making them come into existence, meaning the internet exchange points, that is the definition of success. If nothing else, I could define success in working with Connected Nation as raising awareness and educating everyone in a decision-making position about how the internet actually works, whether it’s us or someone else that comes along and builds it and fixes the problem, at least the problem gets fixed.
Pete Pizzutillo:
Well, it’s interesting because, and there’s some oversight starting to be talked about in terms of all this money flowing out there, but there really hasn’t been, that I’ve seen, kind of a national broadband strategy. I think this blind spot that you’re pointing to is interesting when you think about the long-term affordability of these systems as well as you talked about latency and all the advanced applications that we’re dreaming about that autonomous cars and telehealth and solving that latency problem.
What you’re pointing to is something that will help. Are we building systems for the future or are we building systems that just get us through this kind of temporary moment? I think you’re trying to illuminate guys. You need to look at A, understand the whole how the damn thing works, and start putting the money in the appropriate places to get to those end goals. Does that make sense?
Hunter Newbie:
Yeah, absolutely. I mean, I could think of many analogies. Airports is a really good one. This is the difference between having an international airport, a regional airport, or no airport. You got to start somewhere. Like I said, just building one is a great start and then it works. You get the networks to come in, the university brings its campus network in and the students and the campus traffic is now localized there, which then attracts the content providers and the cloud and the gaming. Now all of a sudden, you have a local hub and all the other fiber networks that are now in a broader range radius will say, “Hey, look, let’s build into there and drop off our traffic or as much of it as we can anyway, to mitigate the need to backhaul from here to somewhere far away.”
It’s the same thing as connecting flights. Anybody that understands that they’d rather fly direct than connect, understands this. They understand that to get to the internet, you have to connect if you live in a place that’s far away. If you have an internet exchange point, that’s like having JFK Airport in your state or in your town. Beyond that, the permanency of the physical structure is if you are in this space at all, it’s really important to understand the open systems interconnection model, the OSI model, the seven layers, what’s called the seven layers of the stack, and layer zero is dirt basically. Layer one is physical, in which we talk about fiber and then wavelengths, and I don’t want to get technical, but just above that, effectively ethernet, which is called datalink, but we all sort of refer to it as transport.
Then layer three is the internet, internet protocol. I stop there, I understand all the layers, but I don’t do anything higher than that. I am a layer zero, one guy, that’s what I do. AI organize things like manholes and conduits and ducts and points of entry, the building itself, the risers, the laterals, the roof, the physical structure, and then the business model within the building, within the room, how you actually bring fiber cables of different networks into that room where they terminate and how they get connected to each other based upon their requests to interconnect.
That’s business. It exists at the, I call it subterranean level almost. Most people think the internet is some technical thing and they think it’s complicated. I start at the dirt layer. If you can’t understand dirt and building a manhole and yeah, it’s public of right of way, physical layer access, pulling a fiber cable in and terminating it to a panel, there’s nothing technical about it.
There are no protocols in terms of internet protocol or ethernet or anything like that. It’s just how to organize a physical system. That’s what you have to do first. A lot of people have come along in the past many years and they’ve talked about things relative to another term that I try not to ever mention, which is the edge. It’s been overused, it’s so many definitions, it has none. They focused on saying edge computing. I don’t do anything relative to computing. I don’t build data centers. I’m not looking to have servers, although, my facilities can accommodate them, they’re not purpose-built for that. This is about edge interconnection. When you think about the edge, where is the interconnection? It’s wherever. It’s in Manhattan or Brooklyn. Interconnection is in neighborhoods, interconnection is in Kansas City and interconnection is in Kansas.
Some places have these facilities already built and running. Many of them have it by default. They take it for granted, they don’t even know they have it. Other places that don’t have it are starting to learn they don’t, because they’re realizing the reason why my internet here, my provider choices are limited, it’s slow and it’s expensive is because I don’t have one of those airports. Bringing that together really is what’s going to help solve the problem, as I said before, and it’s an education and awareness problem, but it’s very much an interconnection issue. Layer 0, 1, 2 stuff.
Pete Pizzutillo:
You’re putting the infrastructure in the infrastructure broadband. You guys are in there. It’s interesting because I do think cloud and kind of all the ethereal stuff about the data floating around, I think Google and all those guys have done a great job getting people thinking about, that’s the internet, but there are guys with dirt on their nails and grease on their face putting this damn thing together.
Hunter Newbie:
Yeah. Every one of the cloud providers that you mentioned and more, resides within physical air facilities, all of them. They’re all in buildings somewhere. They have their own data centers, yes, but they all have physical air points of presence in multi-tenant networks, neutral interconnection facilities, and not just one. Many, many, many all over the world. Without them, they wouldn’t be able to function properly.
Pete Pizzutillo:
Right. Switching gears a little bit, I know you have spoken to Todd Zabel from the PPI. And supply chain issues was a big topic in the last 18 months. A lot of vendors were kind of pushing back their forecast because of supply chain issues, projects are getting delayed. I think as we come into 2023, what I’m hearing is people feel like the supply chain issues are in the rearview mirror. Some people have vertically integrated, and some people have just bought a ton of stuff at a time snatched all up. Now, what are your thoughts on where we are on the supply chain, not just on the fiber side, but just overall kind of the buildout of all the infrastructure?
Hunter Newbie:
I don’t think that this problem’s over at all. I talk to people every day that are still living in this, and they don’t see an end to it. If you’re talking to people that have the cash position and balance sheet to pre-buy all the material they’re going to need for the next three years, they’re in good shape. But that’s probably not good from an investor’s perspective on the rate of return to have pre-buy a bunch of material that is going to sit around, that’s a problem. You could say you solved the problem by pre-buying it, but you just burned a lot of cash and you’ve got pallets of stuff sitting somewhere that you can’t deploy and turn into revenue. That’s not really the way to solve the problem, first of all. Yeah, the supply chain problem is still present and real.
I mean, the last time I checked, the Ukrainian neon plants aren’t back online. When they went offline, 50% of the neon production in the world stopped. You need neon to etch silica, and that is necessary to create the chips that go into everything. The chip supply has been cut, which caused a shortage of all kinds of hardware, optical hardware, and then the high-end generators that require synchronization. That’s a lot of the material that was pre-bought. Like those big generators, they’ve been bought out.
I’ve talked to some people that I know friends of mine that run big data center companies and they’re looking at lead times that go beyond a hundred weeks. It’s a big problem. There are other problems too, related to energy — utility companies not being able to distribute the power. There are many other issues related to that in terms of, I don’t know, rules and requirements for the kind of power that it is.
You see often articles about brownouts and blackouts and there’s a growing, I don’t know, dislike for data centers because they’re viewed as big power users. Some places aren’t going to be able to deliver it, and now there’s a whole big shift, at least on the data center side because this is all interrelated, but I’ll just focus on that one’s part. When I say data center, I’m talking about the big ones, the multi-megawatt, 10-plus megawatt type sites. Even some of the smaller ones are just trying to grow incrementally, two to four to six megawatts. There are different aspects of things that they can’t get, whether it’s generators or switch gear or whatever. You’re looking at the utility companies saying to get off the grid during peak load shedding. They’re saying, use your generators.
There’s a concept that’s growing, and I have some friends that are talking about it, self-generation, and they’re literally saying, we’re going to have to build data center campuses, dirt on, get natural gas fields and pull the gas out of the ground to turn the turbines to generate the electricity, to run the data center because we can’t rely on the grid, we can’t rely on utility companies.
That right there, that’s the problem. It’s acute, it’s huge. You could call it a supply chain issue. People literally are thinking about how to just cut out the middleman and get a supply of fuel to generate their own electricity. That’s not just something like, oh, 10 years from now, they need it now. Whether you’re a smaller company and you pre-bought everything you think you’re going to need for the next couple of years, that’s great. In the macro level picture, there are things that are changing in the world. I think energy itself is changing and that hasn’t gone away, that’s for sure.
Pete Pizzutillo:
Yeah. The point about the neon invite is there’s an article I think you have around on, you sent around looking into how things are … You have a pattern to what you think. I mean kind of really looking at how things work or how things are built. If there’s a fundamental flaw there, then you can tell yourself all you want on the back end. The reality is there’s no neon. There are no lasers. You’re not getting chips. Anything that you need a chip for is going to be delayed no matter how much planning you have done.
Hunter Newbie:
That’s right. Yeah, that’s correct.
Pete Pizzutillo:
We’re listening to The Broadband Bunch. We’ve been speaking with Hunter Newbie, he’s the owner of Newbie Ventures about a lot of different things, including digital infrastructure in general. Hunter, I do want to slide into funding. I mean, we’re kind of about 18 months into the bead funding and there’s some money leaking out. A lot of people are fighting over kind of FCC map data. There’s a lot of hype around it and hope I should say around this, and you’ve laid out a couple of things, kind of some blind spots in our approach, some concerns around supply chain. I mean, what’s your take on how this money is moving so far and what kind of obstacles do you think we really need to wake up and start addressing now if we do want to see this money realize this close in the digital divide?
Hunter Newbie:
Well, I just focus on what I know in my part. I mean, I could opine on some of the broader issues, but that’s outside of my field really. The political aspects are the sourcing of materials for fiber to the home. People that are in that space probably could speak to it way more intelligently than I can, but right now, the most important thing for myself and Connected Nation in our venture is to raise awareness of what we’re doing, what we’re actually already underway with.
It’s very well-documented, very well-proven as internet exchange points are a network element that exists today. They have for many, many years and are very successful. Raising awareness of that is really important now, during this time. I use the term partner sort of broadly in the sense that the local fiber providers that are out there, understand this from their perspective when they’re receiving grant funds to build fiber to the home and they’re increasing the speed that people can have access to, it is increasing that fiber provider’s backhaul requirement. This increases their opex. Then the opex begins to exceed income.
Huge problem. They’re like, how do we solve this problem? We will bring the internet to you, put it in your town, and build using some of your funding. We will build fiber into the exchange point and drop off as much of that IP traffic as you possibly can there. It mitigates the need for the backhaul, reduces the opex, and brings about new high-margin wholesale revenue opportunities to sell type two circuits to the larger national players that build into that facility, that want to buy transport on those local providers’ networks to the Z oaks that they have on the net that the big guys will never overbuild. They’d just rather lease a circuit.
I’ve been doing what I just described for 20 years, starting in big cities where it was unheard of. Then working my way down through tier two and three cities in the US, that is what we’re focused on.
I think the biggest obstacle is just the limited time, and the ability to reach out to everyone with that message. This podcast really helps and I appreciate that tremendously and educating as much as possible in informing as much as possible the authorities that are allocated these funds, as to where to place them based, not just because it’s my idea, but based upon actual local needs. Universities and whatever, local fiber providers, et cetera. Everyone in this community at the local level saying, “Hey, NTIA or governor or broadband office, we need this. We understand what it is, everybody else has one. We want one.” That’s what’s the most important thing for us to do in the next handful of months.”
Pete Pizzutillo:
No, I appreciate that. That’s great. Then on the private side, there’s a lot of scary stuff happening, a lot of uncertainty, as you mentioned, supply chain already and inflation is already going on or we’ve been dealing with that for a while, but workforce constraints. How are private funders re-strategizing their approach to the market this year versus say 18 months ago?
Hunter Newbie:
Wow, things have definitely changed. There’s still a very strong belief and desire for premium interconnection sites. Again, I’m going to focus on my field. There’s a broader field, but what I’m involved in, in my space, there’s sort of a ladder. There are strong players at the top and there are weaker sort of players at the bottom. The weaker players at the bottom, generally speaking, don’t own their own assets. They’re just leasehold interests in someone else’s building, generally, broadly speaking. The increased cost of capital is problematic. The higher cost of power is very problematic. It’s changed a lot of deals that have already been signed that have a hard time securing financing to get built, and/or deals that were already built that were based on a contracted power rate that’s locked in. Now the power rate’s gone up. And those deals are underwater. That’s a problem.
Then the supply chain is trying to predict what the cost of a thing is going to be tomorrow. Then trying to get a vendor to hold that price. It’s very difficult to get projects built that are going to take a long time. The cost of capital’s moving, the cost of power’s moving, and the cost of the materials and labor are moving. It’s hard to come up with a price and commit to that price and hold that price.
The private capital sees that, and obviously, that causes pause and some concern. Anything that’s already built up and running, contracted, strong credit tenants that are paying their rents, are really desirable. They can still command premiums in the market. The problem is there are just fewer of them. That’s because there’s been a lot of M&A in the space for the past decade.
To use a phrase that I’ve heard many times in my private equity guy friend circles, the United States has been picked over. They’ve looked at everything. There are a few things that are still out there, but they’re kind of single-site things or whatever. Everyone wants to buy a platform. Everyone wants to write a big check, put it to work, and get a really great deal. Anybody that’s got anything like that knows what it’s worth and they’re the ones holding out for the premiums. There’s still that tension in the market as far as where value is, but it’s making equity more expensive. Debt’s more expensive.
Let’s just face it. A lot of the big equity funds and infra funds that just 18 months ago, were trying to get into the space with a big check. And they’d be happy with a 5% return because it’s accretive to what their cost of capital is.
Now, that debt is up to what, 7-, 8%? It depends on who you are and how healthy you are. It could be as high as 10%. I’ve heard in some cases, those infra funds are like, well, you know what? We’ll just turn this into a debt fund. Or we’ll get debt service today with no risk or collateralized risk anyways. They are hoping to not have to sit in the equity of a deal for the next several years to see if it works out.
That sort of sentiment shift is problematic for new builds and new investments. It’s the perfect time for the government funding, the bead funding, to be coming out. If not for that, it would be very difficult to get private capital to fund a lot of this expansion and growth. It puts more emphasis on getting it right with those dollars that are available to be spent.
Please do not squander this. Please do not put this into projects that aren’t going to work out. Do not put this into projects that take the money and then try to give it back later. This happened before in the era and was a disaster. The internet is still growing. The internet doesn’t care, the internet is growing. It needs to be fed. People need infrastructure to keep growing. That requires organization and planning through every layer, particularly the supply chain of money. I hope people can put all their brain power into that here in the next several months. Hopefully, we realize how valuable this moment in time is for the country.
Pete Pizzutillo:
Yeah, we’re working on a series about just how public and private money is going to help. It may fall short. But I’m not going to inject my cynical view on you. If you had to look ahead 24 months from now, what kind of progress do you think we’ll make? Where do you suspect that we’re going to fall a bit short?
Hunter Newbie:
Well, all the usual stuff. We’re going to see some of those things, but they’re going to happen anyway. Connected Nation is bringing the network element concept of internet exchange points and internet exchanges to rural America. We have had this digital divide broadband problem for so long. We will bring that concept out to all these places and raise awareness of the need for them. That in itself is progress.
I believe we will be successful in securing one or more of the stated sites that we’d like to build. Then hopefully, the participants at the local level will tell everyone about it and say, “This is great. These are the benefits. This is how it benefits us and this is what it’s doing. This is what it’s already done.”
Then we hope that others like them will see themselves in that. They will say, “Wait, that’s me. I was in that town and in that state. I was that person.” Then they could start asking for it, requesting it, wanting it, and you know what? This grant program’s going to come and go and there’ll be others. The states have other sources and they could create things and do things if it’s of imperative necessity.
I would like to raise awareness of network-neutral interconnection facilities. They are an imperative element of the network architecture landscape in every state. Everyone should know the benefits of it and be able to communicate what they need. Then find the right places for these to go. We already have 12 months getting into 24 months, to get as many of these funded and built as possible. We know that there’s going to be supply chain delays and everything else. We’re just going to have to fight through it and get everybody on the right track.
In a few years, we will no longer have to talk about it as the broadband problem. Everyone will have the benefit of having this type of facility approximate to them. Fiber investments can continue to occur from those points out to the endpoints: buildings, hospitals, and schools. The internet exchange points are there and the content cloud and everything are localized and everyone’s happy. Hopefully, no one will remember back to this time that we’ve lived without this problem being solved. That’s what I think I would hope for as far as progress in the next couple of years.
Pete Pizzutillo:
Going back to electrification, another kind of infrastructure in the United States, there’s a lot of stuff that we don’t know about. So I do hope we put it in a rearview mirror. Hunter, thanks for kind of explaining how dirt is related to the internet. That’s a big gap for us. How can our listeners learn more about you and connect with you and the things that you have going on?
Hunter Newbie:
Well, you could just go to Newbie Ventures. That’s the site for my fund. Also, that’s where my research is living presently today, newbie-ventures.com. I’ve got my published work there, a lot of interviews, and podcasts like this. Yeah, that’s a place to start. Then there is a lot of the sub deals that I’m a partner in and invested in. They’re referenced there on the site, and if anybody has any questions, you can reach out to me through that.
Pete Pizzutillo:
Great. Hey Hunter, thanks for joining us.
Hunter Newbie:
Great. Thank you. It’s been a pleasure. Really appreciate it.
Pete Pizzutillo:
Yeah, that’s the kind wrap-up of this episode of Broadband Bunch, and thank you for listening. If you’ve made it this far, you’re probably into all things broadband as is Hunter. We have a lot of things on our website broadbandbunch.com. There are weekly episodes and resources. We’d love to share your story. If there’s any research or insight that you have and think others can benefit from hearing, please reach out. We’d love to have you on the show. Thanks for listening.
