Dark fiber and long-term fiber agreements for AI data centers

In short

Dark fiber is unlit optical fiber that a customer leases or buys the right to use exclusively. The customer installs its own electronics to light it. That gives the customer full control over network performance and capacity. AI data centers secure dark fiber through long-term Indefeasible Rights of Use (IRUs), often 20 to 30 years, or shorter dark fiber leases of five years or less. In FCC 08-1, the Commission found the record inadequate to conclude that Bell Operating Company dark fiber offerings constituted common carriage and vacated prior orders subjecting them to Title II regulation, while explicitly declining to resolve the broader question of dark fiber service classification. FCC 08-1. A well drafted IRU that grants an equitable property interest can protect the buyer if the fiber company files for bankruptcy. In re Worldcom, Inc., 343 B.R. 430 (Bankr. S.D.N.Y. 2006), 11 U.S.C. § 541(d). The market is growing rapidly, driven by hyperscalers like Google, Microsoft, and AWS, which are signing multi billion dollar contracts for fiber capacity.

What is dark fiber?

Dark fiber is optical fiber that has been laid but is not yet active. The glass strands are ready to carry light signals, but no optical equipment at the ends transmits data. The customer installs its own lasers and receivers. The customer decides when to light the fiber and what data protocols to use.

The term comes from the fact that the fiber is dark. No light pulses travel through it until the customer turns it on.

This is different from a lit fiber service. With lit fiber, the provider operates the electronics and sells a managed circuit or wave. The customer shares the network with others and has less control.

Dark fiber gives an AI data center operator complete control over its network. The operator can upgrade transmission speeds by swapping the electronics at the ends, without ever digging up the fiber. Modern fiber can carry many wavelengths of light at once, a technology called Dense Wavelength Division Multiplexing (DWDM). A single fiber pair can support 96 or more wavelengths, each capable of 400 gigabits per second or more. Data Center POST.

A large AI data center needs many fiber pairs to connect to other AI data centers, cloud regions, and internet exchanges. Hyperscalers are now routinely ordering 12 to 48 fiber pairs on a single route, with some orders reaching 144 to 432 fibers. Om Malik.

How do AI data centers secure fiber capacity?

Two main legal structures exist. An Indefeasible Right of Use (IRU) is a long-term agreement that works like a purchase of capacity. A dark fiber lease is a short-term rental. Each has different economics, tax treatment, and bankruptcy risk.

Indefeasible Right of Use

An IRU gives the buyer exclusive rights to use specific strands of fiber along a defined route. The right is called indefeasible because it cannot be undone or revoked as long as the buyer meets its obligations. IRUs often run 20 years or more, with renewal options. The buyer pays a large lump sum up front, often half at signing and half after the fiber passes testing. Beyond Telecom Law Blog. For accounting, an IRU is usually treated as a capital asset.

An IRU typically conveys an equitable ownership interest in the fiber, even though legal title stays with the provider. The buyer has the exclusive right to use its fiber. City of Decatur IRU. That property interest is what makes the IRU safer in a bankruptcy, as explained below.

Dark fiber lease

A dark fiber lease is shorter, often five years or less. The customer makes monthly or annual payments. The fiber provider retains more control and often handles maintenance. The lease is treated as an operating expense under GAAP. It does not grant an ownership interest. It is a right to use the fiber for a limited time. At the end of the term, the customer must negotiate a new deal or switch to another provider.

Side by side comparison

Pricing and practical points

The principal pricing metric for an IRU is the cost per fiber strand per mile. The upfront fee is often paid in two installments, half at contract signing and half upon fiber acceptance after testing. Beyond Telecom Law Blog. The agreement must be specific about several things. Is the grant exclusive or nonexclusive? Can the customer install regeneration equipment along the route? How should capacity be allocated among multiple carriers? Broadband Breakfast. Most agreements also include a service level agreement for fiber cuts, with repair crews available 24 hours a day, every day, and defined response times.

Who is driving the AI data center fiber market?

Four hyperscale cloud companies dominate the buy side. Amazon, Google, Microsoft, and Meta together spent a record $130.65 billion on capital expenditures in the first quarter of 2026 alone. The New York Times. These companies are buying dark fiber on an unprecedented scale. Between 2020 and 2024, hyperscalers accounted for 57 percent of all metro dark fiber installations in the United States. Om Malik.

The U.S. dark fiber network market was valued at $1.18 billion in 2025 and is forecast to reach $1.84 billion by 2031. Mordor Intelligence. The global dark fiber market was about $7.45 billion in 2024. Kings Research. Growth is pulled by the rapid rise in AI computing, which needs enormous data flows among data centers. U.S. AI data centers consumed roughly 180 terawatt-hours in 2024, nearly half the global total. That usage is projected to climb 130 percent by 2030. Mordor Intelligence.

Supply side build out

Major fiber providers are racing to meet demand.

Zayo booked more than $1 billion in AI-related long-haul deals in 2024, with an additional $3 billion in its pipeline. Zayo. In April 2026, Zayo secured an anchor customer for 8,000 route miles of new builds and overbuilds, the largest single network investment in new build and overbuild miles in its history. Om Malik. Zayo also agreed to acquire Crown Castle’s fiber solutions business, adding roughly 90,000 route miles. Zayo.

Lumen has nearly $9 billion in AI and cloud connectivity contracts. It plans to add 34 million new intercity fiber miles by the end of 2028, aiming for 47 million total miles. Lumen, Fierce Network. Lumen reserved 10 percent of Corning’s global fiber capacity for each of the next two years under a 2024 supply agreement, its largest cable purchase ever. Corning.

AT&T signed a $1 billion multi year fiber purchase agreement with Corning. Kings Research. Verizon announced new dark fiber leases to hyperscale AI data centers in Northern Virginia. Coherent Market Insights. Bandwidth IG expanded its dark fiber network in the San Francisco Bay Area, adding over 310 route miles and more than 2 million fiber miles, including the first marine cable under the Bay in two decades. Kings Research.

How orders have changed

Before the AI boom, a typical long-haul dark fiber order might be 8 to 12 fibers. Now hyperscalers routinely order 12 to 48 fiber pairs per route, with some reaching 144 to 432 fibers. The largest long-haul dark fiber deal in 2024 was an 864-fiber-count purchase by a single hyperscaler. Om Malik. Metro dark fiber purchasing grew 268 percent from 2023 to 2024, and long-haul grew 52.6 percent. Bandwidth purchased for AI data center connectivity has grown 330 percent from 2020 to 2024. Om Malik.

To meet that demand, fiber makers are announcing cables with 3,456 strands per cable, and some with 6,912 or even 16,000 strands. Multi-core fiber and hollow-core technologies are also advancing. Fiber Broadband Association.

Building fiber is expensive. The median underground deployment cost in 2025 was $18.00 per foot, up 3 percent from the year before. Aerial deployment cost $8.00 per foot, up 14 percent. Labor accounts for 72 percent of underground deployment costs. Fiber Broadband Association.

How does federal law regulate dark fiber?

Whether a dark fiber arrangement triggers common carrier regulation under Title II of the Communications Act depends on how the fiber is offered. Providers usually stay clear of these heavy rules by staying dark, providing only passive infrastructure.

The key definitions

Under 47 U.S.C. § 153, telecommunications is the transmission, between points specified by the user, of information of the user’s choosing, without changing its form or content. 47 U.S.C. § 153(50). A telecommunications service is the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used. 47 U.S.C. § 153(53). An information service is the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service. 47 U.S.C. § 153(24).

A telecommunications carrier that offers a telecommunications service is a common carrier. Common carriers must serve all comers on equal terms, file their rates with the FCC, and follow many other rules.

The FCC dark fiber order

The FCC addressed dark fiber in a 2008 order. The main test for common carriage, known as the NARUC test, asks two things. Is there an indifferent holding out to serve all eligible users? Is there a legal compulsion to serve them indifferently? The FCC found the record on remand inadequate to conclude that the BOC dark fiber offerings satisfied the NARUC test of indifferent holding out and legal compulsion. The record did not show that the providers indifferently held themselves out to the public. FCC 08-1.

The FCC vacated earlier orders that would have required Bell Operating Companies to file tariffs for dark fiber. As a practical matter, most utilities avoid common carrier status by providing only the passive fiber. The customer installs and operates its own electronics. That keeps the provider out of the transmission business. Broadband Breakfast.

Unbundling obligations reduced

In 2020, the FCC eliminated mandatory unbundling of dark fiber transport for incumbent local exchange carriers from wire centers within a half-mile of competitive fiber networks. A transition period of eight years applies to existing unbundled dark fiber transport circuits provisioned from wire centers within a half-mile of competitive fiber networks. FCC 20-152. So in those areas, incumbents no longer must lease dark fiber to competitors at regulated rates.

What happens if the fiber provider goes bankrupt?

A fiber provider could file for Chapter 11 bankruptcy. The outcome for the IRU grantee depends entirely on how the IRU was structured.

Executory contract risk

In bankruptcy, a debtor can reject executory contracts under 11 U.S.C. § 365. An executory contract is one where both sides still have material obligations to perform. If an IRU is treated as an executory contract, the debtor can reject it. The grantee would be left with a prepetition unsecured claim for damages. 11 U.S.C. § 365(g), 11 U.S.C. § 502(g).

Property interest protection

The safe path is to make the IRU a true conveyance of a property interest. Under 11 U.S.C. § 541(d), when a debtor holds only bare legal title and not the equitable interest in property, the bankruptcy estate acquires only the legal title. The equitable interest stays with the grantee. 11 U.S.C. § 541(d).

The leading case is In re WorldCom. WorldCom had granted an IRU for specific fibers. The agreement gave the grantee exclusive rights, characterized the deal as a sale and purchase, and required full upfront payment. When WorldCom went bankrupt, the court held that the grantee held a property right in the fibers, not merely a contract right. The grantee’s rights survived the bankruptcy and the later assignment to a third party. In re WorldCom, Inc., 343 B.R. 430 (Bankr. S.D.N.Y. 2006).

Drafting to survive bankruptcy

To get this result, the IRU must read like a purchase of capacity, not a service agreement. Several features matter.

• The agreement should say that the grantee receives an exclusive, indefeasible right to use and an equitable and beneficial interest in the designated fibers.
• It should call the transaction a sale and purchase of a defined number of fibers along a specified route.
• The fee should be paid up front, not in periodic installments that resemble rent.
• It should give the grantee the right to assign or transfer its fiber.
• It should require the provider to take steps to protect the grantee’s interest, such as filing UCC financing statements.

A poorly drafted IRU that looks like a long-term service contract risks being recharacterized as an executory contract that the debtor can reject.

Other risks for the grantee

Even with a solid IRU, the grantee faces other risks. The most important is the loss of the underlying easement or right-of-way. That is covered in the next section. Fiber cuts are another. An IRU commonly includes a service level agreement with repair crews available around the clock and specific response times. Beyond Telecom Law Blog.

What right-of-way and easement risks exist for fiber routes?

Many long-haul fiber routes run on utility corridors. Electric utilities own thousands of miles of fiber strand along their transmission lines. They hold easements from the underlying landowners. Those easements were often written decades ago with language like for electric utility purposes. The key question is whether that old language permits the utility to lease dark fiber to a data center or a telecommunications carrier.

Easement scope and state law

The answer depends on the exact wording of the easement and on state law. If the easement is restrictive, the utility may need to obtain new landowner consents or buy supplemental easements. Broadband Breakfast.

State utility commission approval

In some states, notably California, investor-owned utilities must get state public utility commission approval before leasing fiber to third parties. State commissions have also set up revenue sharing frameworks. Because the fiber was often built using ratepayer-funded transmission assets, a portion of lease revenue may need to flow back to ratepayers. Broadband Breakfast. Where the infrastructure is under FERC jurisdiction, the revenue may also be subject to FERC accounting and cost of service rules.

What an AI data center should do

Before entering an IRU, the AI data center should review the provider’s underlying easements. The IRU should include a representation that the provider holds sufficient rights of way for the full term. It should also include a fallback if an easement is lost, for example an obligation to provide an alternate route or a refund.

How do recent executive orders affect fiber permitting?

On July 23, 2025, President Trump signed Executive Order 14318. It aims to speed up federal permitting for data center infrastructure. EO 14318.

The order defines Qualifying Projects as those where the sponsor has committed at least $500 million in capital expenditures, or where the project adds more than 100 megawatts of load, or where the project has a national security benefit. The Executive Director of the Federal Permitting Improvement Steering Council may designate Qualifying Projects as transparency projects under FAST-41 and shall expedite the transition of eligible Qualifying Projects to covered projects for streamlined review. EO 14318 § 6.

The order also tells federal agencies to identify NEPA categorical exclusions that could help construction. It covers Covered Components Projects, which might include fiber routes that directly serve an AI data center. It is less clear whether a standalone long-haul fiber project, built apart from a specific AI data center, qualifies. Counsel should follow how agencies apply the order.

The new order revoked the earlier Biden Executive Order 14141. That earlier order had set a February 28, 2025 deadline for DOD and DOE to identify federal sites for AI data centers. Some sites were chosen, including the Idaho National Laboratory, Oak Ridge Reservation, Paducah Gaseous Diffusion Plant, and Savannah River Site. The status of private buildout on those sites is not yet confirmed.

Key takeaways

• Know the two structures. An IRU is a long term purchase of exclusive fiber capacity. A dark fiber lease is a short-term rental. The legal and tax treatment are different.
• IRU can survive bankruptcy when drafted correctly. Give the grantee an exclusive, equitable interest. Use sale and purchase language. Require an upfront lump-sum payment. The WorldCom case shows the way.
• Dark fiber stays out of common carriage when providers stay passive. The FCC’s 2008 order and the NARUC test mean that most dark fiber providers are not common carriers under Title II.
• Review the underlying easements. The fiber is only as good as the right-of-way it runs on. Old electric utility easements may not cover fiber leases. Get state PUC approval where required.
• Hyperscaler demand is reshaping the market. Orders are larger, deployment is accelerating, and fiber supply is becoming a critical piece of AI infrastructure.
• Watch for permitting reform. EO 14318 may speed fiber projects that tie to a qualifying data center. Standalone fiber routes are in a grey area.

Frequently asked questions

Q:What is dark fiber?

A:Dark fiber is installed fiber optic cable that is not yet lit. The customer adds its own optical equipment to transmit data. This gives the customer full control over the network.

Q:What is an IRU?

A:An Indefeasible Right of Use is a long-term agreement that gives the buyer exclusive rights to use specific fiber strands. The right is permanent (indefeasible) for the term of the agreement, often 20 to 30 years, and the buyer pays a large upfront fee.

Q:How is an IRU different from a dark fiber lease?

A:An IRU typically lasts 20 to 30 years, involves an upfront payment, and conveys an equitable ownership interest. A dark fiber lease lasts five years or less, uses monthly or annual payments, and is an operating expense with no ownership interest.

Q:Can an IRU survive the fiber provider’s bankruptcy?

A:Yes, if drafted to convey an equitable property interest. Under 11 U.S.C. § 541(d) and the WorldCom case, such an interest stays out of the bankruptcy estate. An IRU that reads like a service contract risks being rejected as an executory contract.

Q:Does an IRU give me ownership of the fiber?

A:No. The IRU typically grants an equitable interest and the exclusive right to use, but legal title stays with the provider. You cannot rip out the fiber, but you can control its use and assign your rights.

Q:Is a dark fiber provider a common carrier under federal law?

A:Usually no. The FCC ruled that simply offering dark fiber is not a common carrier service as long as the provider does not hold itself out indifferently to serve the entire public. By staying dark and not offering transmission, most providers avoid Title II regulation.

Q:What protections should an IRU include?

A:Exclusive use, equitable interest, sale and purchase language, upfront payment, right to assign, right to install regeneration equipment, an SLA for fiber cuts with 24/7 repair, and a warranty that the provider holds adequate rights-of-way.

Q:What happens if the fiber gets cut?

A:A well-drafted IRU includes a service level agreement that requires the provider to repair cuts promptly, with specified response times and around-the-clock availability.

Q:How does an electric utility’s old easement affect my fiber deal?

A:If the easement says for electric utility purposes, it may not permit leasing fiber to third parties. The utility may need landowner consent or a supplemental easement. The IRU should include protections if the easement is lost.

Q:What is Executive Order 14318?

A:It is a 2025 order that speeds up federal permitting for AI data center infrastructure. Projects with at least $500 million in capex or over 100 megawatts of load can qualify for streamlined review. Fiber routes that directly serve an AI data center may also qualify.

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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.