CS&L acquires Hunt Telecom for $170M to accelerate E-Rate, dark fiber backhaul capabilities

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Communications Sales and Leasing (CS&L) is acquiring Hunt Telecom for $170 million in cash and equity, advancing its Uniti Fiber unit’s E-Rate capabilities.

Hunt is a provider of data transport to K-12 schools and government agencies with a dense network of 140,000 fiber strand miles and 2,600 fiber route miles in Louisiana.

CS&L announced the acquisition during its fourth quarter earnings call.

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Kenny Gunderman, CEO of CS&L, said in the earnings release that “as we integrate Hunt and Uniti Fiber, we expect to capture $2.5 million in annual run-rate cost savings within 18 months from closing.”

E-Rate drives new opportunities

By acquiring Hunt, CS&L will be able to build upon the E-Rate capabilities that it gained when it previously acquired PEG Bandwidth.

Like other fiber-centric providers, Hunt has been able to take advantage of the FCC’s new E-Rate rules that allow school districts to get funding for dark fiber network builds.

Hunt has gained a decent reputation in serving local school districts via the E-Rate program, reporting very low customer churn. “Hunt has only lost one E-Rate customer in 10 years and we fully expect to utilize their expertise in E-Rate across our Uniti footprint,” Gunderman said.

As seen by other fiber-centric providers such as Fatbeam, Conterra, and Zayo Group, E-Rate customers often serve as anchor tenants for other wholesale and business service customers.

While serving schools has been Hunt’s focus, Gunderman said that by acquiring Hunt, CS&L can use its existing network for small cell and tower backhaul. “Hunt currently has very low fiber to the tower and small cell activity and we expect to utilize Uniti Fiber’s experience to grow that opportunity on the Hunt network,” Gunderman said.

Dark fiber interest ramps

In the Tier 2 and Tier 3 markets it serves, CS&L is seeing more of its customers migrating from lit to dark fiber services.

The service provider’s Uniti Fiber unit signed a dark fiber agreement with a large national wireless carrier for their small cell rollout, for example.

While CS&L would not reveal who the wireless operator is, the dark fiber network contract will serve 1,000 small cell sites.

Gunderman said CS&L sees growing opportunities for dark fiber across all of its customer segments.

“The trend towards more dark fiber, longer contracts and greater carrier demand, especially in Tier 2 and Tier 3 markets, are all consistent with our expectations,” Gunderman said.

One concern that’s facing various fiber-centric service providers is a slowdown, or pause, in wireless operator spending on backhaul services.

Fellow fiber-centric provider Zayo revealed in its latest earnings report that as carriers map out their strategies for 5G wireless and industry consolidation, it’s causing some to delay decisions.

Gunderman acknowledged that while one large wireless carrier delayed its RFP for fiber, CS&L is not seeing a broad slowdown across its carrier customers.

“We have seen at least one of the carriers hold back on RFP activity relatively recently, but that’s been more than offset by recent RFP activity among the other carriers,” Gunderman said. “As it relates to us, we have not seen it impact our bookings and our pace continues on pace if not better than what we expected.”

Gunderman added that the reason it is not seeing any impact is because “maybe we’re in the Tier 2-3 markets, which are less of a focus.”

Here’s a breakdown of CS&L’s key fourth quarter metrics:

Leasing: Leasing revenues were $170.1 million, up from $167.4 million in the same period a year ago.

Fiber Infrastructure: Fiber infrastructure revenue for the quarter was $31.6 million and $70.5 million for the year.

Consumer CLEC: Consumer CLEC revenue was $5.2 million, down from $6.45 million in the same period a year ago.

Financials: CS&L’s fourth quarter revenues were $206.9 million. Net loss and Adjusted EBITDA was $4.4 million and $177.2 million, respectively, for the same period.

Uniti Fiber was again a strong performer, contributing $31.6 million of revenues and $11.1 million of Adjusted EBITDA. Uniti Fiber’s results include a full quarter of operations for both Tower Cloud and PEG Bandwidth. The unit’s capital expenditures during the quarter included $21.1 million of success-based and $1.2 million related to maintenance.

For the full year 2016, CS&L’s revenues were $770.4 million. Net loss and Adjusted EBITDA was $0.2 million and $690.2 million, respectively, for the same period.

CS&L expects full year 2017 revenue to come in between the range of $841 million and $847 million.