European mobile operators are increasingly looking for backhaul alternatives to incumbent offerings and could represent one of the biggest untapped opportunities for a dark fiber provider such as Zayo, according to Alastair Kane, the vice president of the company's European business.

Mobile operators without their own fixed-line infrastructure have traditionally leased capacity on incumbents' networks for backhaul purposes, but that model is teetering as usage of mobile data services continues to skyrocket.

"Ever increasingly buying Ethernet-type services is an inherent cost increase that isn't necessarily offset by a large increase in revenues per user," says Kane. "At some stage moving to fiber-based infrastructure is a good economic way to tap that level of growth."

Besides making good economic sense, dark fiber looks attractive to mobile operators because it would give them more control over connections -- much as local loop unbundling of copper-line broadband networks offered advantages over the use of bitstream-based wholesale products.

Unfortunately, for mobile operators, fiber products have remained either unavailable or unaffordable throughout much of Europe, according to research carried out last year by Analysys Mason , a consulting company, at the behest of Vodafone Group plc (NYSE: VOD), one of Europe's biggest mobile operators.

In the UK, for instance, fixed-line incumbent BT Group plc (NYSE: BT; London: BTA) evidently believes it would not be in its interest to provide a dark fiber service, having lashed out at recent proposals by regulatory authority Ofcom that would force it to make one available. (See BT Kicks Up Stink Over Dark Fiber Proposals.)

According to the Analysys Mason report, Dutch incumbent KPN Telecom NV (NYSE: KPN) has the biggest dark fiber network in the Netherlands but does not offer dark fiber services to Vodafone and other mobile rivals because it is wary of cannibalizing revenues from its managed service offerings.

But such an environment could well suit younger "bandwidth infrastructure" players like Zayo Group Inc. (NYSE: ZAYO) that are investing in so-called fiber-to-the-tower (FTTT) networks. (See Brighter Outlook For Dark Fiber in 4G Era.)

Even in markets where incumbents offer dark fiber services, other mobile operators may naturally prefer to use an alternative to a retail rival when purchasing wholesale products. "[There is] that inherent perspective of the incumbency and not wanting to be in that situation but have alternatives," agrees Kane.

Such considerations may already have driven Vodafone into a deal with CityFibre , another dark fiber service provider operating exclusively in the UK market. (See Eurobites: CityFibre Hooks Up With Vodafone,Vodafone UK Looking Into 1Gbit/s 4G and CityFibre Aims for BT's Wholesale Business.)

Last month, the two companies signed a "master services agreement" that could pave the way to the introduction of FTTT services in the future.

Given the green light by regulatory authorities, BT's looming £12.5 billion ($19 billion) takeover of EE , the UK's biggest mobile operator will undoubtedly have spurred Vodafone and other mobile service providers to consider their existing wholesale arrangements. (See BT Locks Down £12.5B EE Takeover Deal.)

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Like CityFibre, Zayo is ready to pounce. The company has already established itself as a major force in the US market for mobile backhaul services and is keen on doing the same thing in Europe.

"A lot of progress has been made over the last year and a half, two years, led in particular by one of the carriers, but the other carriers are spending more and more time thinking about their long-term dark fiber-to-the-tower solutions," said Dan Caruso, Zayo's CEO, when discussing the US business during a recent earnings call with analysts, according to a Seeking Alpha transcript.

As in the US, Zayo has been spending heavily on acquisitions in Europe to extend its network footprint and expand its portfolio of services, and a recently announced €95 million takeover of Ireland-based Viatel could put the company in a much stronger position to offer dark fiber services in the future.

"It adds 8,400 kilometers of dark fiber and allows us to provide fiber-based infrastructure services across Europe," says Kane.

Besides acquiring assets, Zayo has already demonstrated a willingness to build out new infrastructure, investing $159 million in capital expenditure over the July-to-September quarter, or about 43% of revenues.

"We are building new networks and growing those -- around 90% of capital is deployed from a growth perspective," says Kane, noting that revenues are currently growing at an organic year-on-year rate of 7% to 8%.

But a big question for Zayo and its ilk is whether new regulations could spoil the picture. CityFibre has already voiced concern about the proposals that would force BT to offer dark fiber services, conscious that pricing controls on BT could weaken its own business case substantially.

"While CityFibre welcomes Ofcom's decision as a clear validation of our business model, we urge it in the strongest possible terms to ensure that any future approach to pricing in no way distorts the market or discourages investment by independent infrastructure builders," said Greg Mesch, CityFibre's CEO, in a written statement earlier this year.

Kane echoes those sentiments, even hinting that Zayo may skirt some markets if regulation is not to its liking. "We have invested an awful lot of money already and intend to continue that," he says. "But we want a regulatory environment that encourages that and not one that causes us to think about where best to invest our money."

— Iain Morris, , News Editor, Light Reading