with Tim Biltz, President & CEO of Lumos Networks
Tim Biltz may have spent much of his career in the wireless industry, but that experience prepared him to help transform Lumos Networks (Nasdaq: LMOS), once a rural-only telco, into a major provider of fiber-based services for enterprises and wireless operators. With a focus on solving customers' problems, Biltz has built a management team dedicated to creating a "balanced growth story between enterprise and mobility transport." Sean Buckley, senior editor of FierceTelecom, speaks with Biltz about the company's transformation as a fiber-based provider and maintaining growth in its rural ILEC business.
FierceTelecom: Can you reflect on the past year leading the company as CEO?
Tim Biltz: I could not be happier on a macro level of what's happened. I think our story of transformation has not only resonated, but the business in just 24 months has transformed from a rural LEC story to a fiber company. We have recruited a terrific team to augment the talent we had before and we have been able to raise capital to refinance the business to give us financial flexibility. I think we have been able to define our target market with a bit more precision and I think we have a very balanced growth story between enterprise and mobility transport. As a CEO, there are never enough hours in the day and there's a lot more to do, but I have to give my team a lot of credit. They have come a long way in the past 12 months.
FierceTelecom: The fiber to the cell site (FTTC) program has become a big revenue driver for Lumos. What's your approach and how big is the opportunity?
Biltz: My background is more wireless than wireline. I spent my entire career running cellular networks for wireless infrastructure companies. When I was asked to come out of retirement to run Lumos, what was attractive to me was we were going through generational demand for mobile data and it was going to be driven by the functionality and capacity of LTE. The carriers clearly start in their most dense and urban areas, which is where they are going to get the biggest bang for their buck, and then the network evolves out to the Tier 2, Tier 3 and Tier 4 markets over time. Even though some people have described on a national basis the FTTC business is mostly done, the reality is in our markets we're still in the very early stages of it. We have a couple of the national carriers now rolling out and others that haven't started.
In our markets, we typically see much larger access runs required to sites than you would have in an urban area, so the capital commitment is more significant. We started in 2012 with 140 sites and we guided this year to end with 600. We believe that within three years we can hit 1,500 sites with fiber in our markets. Wireless carriers need high quality IP and native Ethernet to handle the traffic that's coming. It's probably on a net basis about 80 percent of our growth.
FierceTelecom: In the business services market, you continue to increase your footprint of on-net fiber-fed buildings. How is your fiber-based services message resonating with the business community?
Biltz: We think that the quality of the fiber network, which is expanding rapidly with the fiber to the cell business, opens up opportunities. In our markets, a lot of buildings are not fiber-fed. There are a lot of Greenfield opportunities in building into the enterprise space. We have moved up-segment in our offering. We focus primarily on multi-location metro Ethernet custom networks and helping larger enterprises not only connect their facilities, but connect to their data centers and into the cloud.
Our sales force has evolved dramatically from selling small to medium sized businesses. We sell very few circuits or dedicated Internet access (DIA) for very small business or even broadband for small business. We focus on enterprises, and our sales force has been reduced in size since I have been here. It's a completely different approach to the marketplace. Our opening discussion with our largest customers is, what problems can we solve for you? The message has resonated very well.
FierceTelecom: You mentioned data centers. Do you see selling wholesale bandwidth to data centers as another wholesale opportunity?
Biltz: Our expansion into Richmond and the fiber we'll be building from Richmond to Ashburn opens up additional opportunities. It's probably one of the weaknesses we have, so therefore it's an opportunity for us to grow. We're only connected to about 12 of the 80 data centers in our footprint. That will be part of our initiatives going forward.
FierceTelecom: Another key initiative is the "edge out" fiber build strategy, which was driven by customers like HCA Virginia. Do you think having your own fiber helps you control the customer experience better?
Biltz: Our edge out strategy is that we go where our customers want us to. HCA was a prime example where we serve a lot of their facilities in the Shenandoah Valley. In an account review, we asked them what else they needed. It became clear that they were not pleased with the options they had in and around Richmond and some of their facilities. That started a process of looking how we could solve that for them. Over the course of the year, we took a disciplined approach to constructing and designing a network that solved their problems and created an opportunity to open up several other businesses by running fiber where it did not exist the way it should have been. We went into it with a more mature market design that worked well for HCA and put Virginia Commonwealth Health Systems on it as well.
We go into a market to service our customers. You'll see us spend more time in Western Pennsylvania in 2014 than we have in the past. A lot of our network there is long haul, and you'll see it become more metro-oriented over the course of the next 12 months. The next part of that, as we continue think of the business to water-stain out, is that now that we're in Richmond you'll see more activity between Richmond and Northern Virginia. Then the natural evolution will be from Richmond onto the coast in Norfolk.
FierceTelecom: There continues to be a lot of consolidation of regional fiber networking providers. Do you think we will see more of it? What is Lumos' role?
Biltz: A couple of things. Look, it's a seller's market. These assets are very valuable. You'll continue to see consolidation. At the same time, you'll continue to see growth of the existing companies. There are private companies out there building nice networks. You're seeing an industry form this fiber-based bandwidth infrastructure segment. That would be tw telecom (Nasdaq: TWTC), Cogent Communications (Nasdaq: CCOI), ourselves, Level 3 (NYSE: LVLT), and Zayo. There's this category of customers that are creating a peer group. We're not the consolidator of that group.
We'll build and bolt on vs. doing massive roll ups. Having said that, we think we can grow the business pretty significantly through our edge out strategy and bolt on acquisitions. I spent most of my first year at the company building the capital structure to do that. We're pleased to announce a secondary offering to sell some shares of our Quadrangle Capital Partners 2000 fund and had nice support to do that. I think we have improved the capital structure and if we see the right thing we'll be prepared to take action.