As AT&T, Sprint and Verizon vie for customer wallet share in the wireless data and price race, Dycom's CEO said it will benefit by getting invited to build out more wireline fiber networks to support the backhaul needed for those networks.
Steven Nielsen, CEO and president of Dycom, told investors during its fiscal second quarter earnings call that ongoing 4G LTE expansion and preparation for upcoming 5G trials and deployments will enhance its wireline revenue potential.
“As we look out over the near to intermediate term, we are increasingly encouraged that newly emerging wireless technologies are driving significant additional wireline growth opportunities,” Nielsen said, according to a Seeking Alpha transcript. “It’s now clear that several calendar 2016 projects are harbingers of the complementary wireline investment cycle that will be required to facilitate what is expected to be a decade long deployment of fully converged wireless, wireline networks.”
Specifically, Dycom is seeing a number of potential fiber build opportunities to support wireless providers’ unlimited offerings and C-RAN deployments.
As a response to bandwidth-hungry consumers that don’t like paying overages, AT&T and Verizon recently announced their own separate unlimited talk and text plans for consumers. Each of these plans will drive the need for additional fiber-based backhaul bandwidth to support a growing deluge of wireless traffic.
“I think particularly with the renewed unlimited offerings, there’s clearly going to be more demand for macro cell site capacity,” Nielsen said. “At the same time we are seeing additional sectors that are being added based on running fiber laterals and then there’s the whole C-RAN development where dark fiber to cell tower, so that there can be more consolidation around the radio access layer.”
Another potential opportunity for Dycom is FirstNet, which is building a nationwide public safety wireless broadband network. While Dycom would not provide any specific details about its work on FirstNet, Nielsen sees it as another sizeable opportunity. “... it’s always helpful when the taxpayers through a federal program can provide billions of dollars of support for capital spending,” he said.
All about the gig
While building fiber networks for wireless backhaul may be a key focus, Dycom is just as bullish on the opportunity to assist large providers with their 1 Gbps FTTH rollouts.
Dycom is providing program management, engineering and design, aerial and underground construction and fulfillment services for 1 Gbps deployments. These services are being provided across the country in dozens of metropolitan areas to a number of customers.
“Several industry participants have articulated plans to deploy multi-gigabit speeds, while others are preparing to do so,” Nielsen said. “These industry developments have produced opportunities across a broad array of our existing customers, which in aggregate are without precedent for the industry in our experience.”
Three of Dycom’s largest customers—AT&T, CenturyLink and Comcast—are all rolling out 1 Gbps and higher speeds over their networks in various parts of the country.
AT&T is ahead of its FTTH buildout schedule, telling investors during its fourth-quarter earnings call that 4 million consumers are connected to its FTTH network, illustrating that the telco is getting closer to its goal to serve 12.5 million locations with fiber-based broadband service. As of the end of February, the service provider reached 51 major metro areas nationwide with its 1 Gbps FTTH service.
CenturyLink and Comcast are being no less aggressive with gigabit deployments.
Despite citing a measure to cut capital spending plans in 2017, CenturyLink has rolled out 1 Gbps services to businesses and consumers in 11 markets. Comcast, meanwhile, is expanding the availability of its 1 Gbps over DOCSIS 3.1 technology in several new markets, including most recently Tuscaloosa, Alabama. Comcast said it plans to have DOCSIS 3.1 deployed across its entire 39-state footprint by 2018.
“Revenues and opportunities driven by this industry standard continue to grow meaningfully during the second quarter of fiscal 2017,” Nielsen said. “Customers are continuing to reveal with more specificity new multi-year initiatives that are being planned and managed on a market-by-market basis.”
AT&T, CenturyLink, Comcast revenue upswing
Whether they are providing wholesale bandwidth or expanding their fiber networks for wireline broadband, Dycom reported that its top five customers combined produced 76.2% of revenue, rising 37.1% organically, while all other customers decreased 7.5% organically. Dycom said the second quarter marks the ninth consecutive quarter of double-digit organic growth.
AT&T was largest customer at 28.3% of total revenue or $198.2 million, growing 48.7% organically year-over-year. Dycom reported AT&T’s growth in wireline services was accompanied by strong growth in wireless services. For AT&T, Dycom renewed construction and maintenance services agreements in Mississippi and Alabama.
Not far behind AT&T was Comcast, which had $116.8 million or 16.7% of revenue, and grew organically 55.2%. At Comcast, Dycom received a construction services agreement in Colorado and renewed construction and maintenance service agreements in Massachusetts, New Jersey, Pennsylvania, and Virginia.
Revenue from CenturyLink was $115.4 million, or 16.5% of revenue. CenturyLink was Dycom’s third largest customer and grew 38.3% organically. Following CenturyLink were Verizon and Windstream. Dycom secured construction and maintenance services agreements in North Carolina, South Carolina and Georgia, and construction and engineering services agreements in Washington, Utah, Colorado and Florida from CenturyLink.
Finally, Verizon produced 8.8% of revenue, or $61.9 million, while Windstream grew 37.4% to $42.2 million, or 6% of revenue.
“Over the last nine quarters, we have meaningfully increased the long-term value of our maintenance business, [which] is a trend which we believe will parallel our deployment of 1-gigabit and wireless, wireline converge networks," Nielsen said. "As those deployments dramatically increase the amount of outside plant network that must be maintained and as customers increasingly require their maintenance providers to be of substantial scale.”
Dycom’s second quarter total service revenues rose 25.3% year-over-year to $701.1 million. Organic revenue grew 22.9%. The company said this quarter reflected a broad increase in demand from several key customers as it deployed 1 Gbps wireline networks and grew core market share.
Looking towards the third quarter of fiscal 2017, the company expects total contract revenues for the third quarter of fiscal 2017 to come in at between $715 million to $745 million.