Consolidated's Udell: On-net fiber opportunities drive metro Ethernet success

As Consolidated Communications sees the majority of its revenue mix trend more toward commercial services, particularly Metro Ethernet, the service provider is keen on pursuing business customer opportunities that it can directly connect to its own fiber network.

Speaking during the Jefferies Global TMT Conference, Bob Udell, CEO of Consolidated Communications, told investors that its focus providing on-net Ethernet services gives it a return on its network build investment.  

"We're specifically focused in each market on identifying the best returns in that market and the sales teams are incented to pursue facilities-based opportunities in on-net buildings versus Type 2 or things we would have to rent," Udell said. "Our metro Ethernet foundation depends on that and profit margins are better in those types of situations."

Over the past year it expanded its fiber network miles by more than 5 percent to 13,038 and on-net buildings by 3 percent to more than 4,800. This expansion was carried out through its own internal expansions and its acquisition of Enventis, which gave Consolidated 4,200 route miles serving its facilities-based business and wholesale customers in Minnesota and into Iowa, North Dakota, South Dakota and Wisconsin. 

What drives Consolidated's fiber networks buildout plan are often customer opportunities. Although the telco does build out fiber on a speculative basis to new building sites, those opportunities are typically driven by an anchor business or wholesale deal.

"I would say the organic expansion is probably two-thirds speculative and a third natural expansion," Udell said. "The way I think about it is anything speculative we're doing for the most part has a key customer driving the proposal."

Udell added that an initial customer win in a building enables it to get a return on its investment for extending fiber to that location.

"More often than not the anchor customer will pay for entry into the building and that seems to be the trend," Udell said. "We're seeing some speculative opportunities where we had a key customer go into an office park or by an industrial area and we'll do a speculative drop and even hang the fiber with the expectation that we're going to get in that building, get a deal with the management company and exploit it."

Interestingly, wireless backhaul deals also drive on-net fiber builds, particularly those that are located in areas that pass by potential business customers. During the first quarter, the telco won contracts for 200 wireless tower builds.

"Most of our network expansions are driven by our sales team," Udell said. "If we're building out an anchor tower customer and we're passing some commercial opportunities along the way, we'll take the time to modify the route to capitalize on future speculative chances to tap customers."

But Consolidated isn't interested in just the tall shiny buildings that its larger ILEC compatriots AT&T (NYSE: T) and Verizon (NYSE: VZ) are typically known to serve. Instead, Consolidated targets buildings outside of central business districts that include between two to five tenants.

"The niche for us is not in competing with AT&T for the Shell building and the lawyers that occupy multiple floors in that building," Udell said. "It's typically right in the outskirts of Houston or right in the outskirts of Pittsburgh, and although we have a portion of the high rises, we're spending more on areas that I would call the mid-market, silver and gold customers."

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