Lumos CEO: We expect our backhaul revenue stream to be TDM-free in 2016

Lumos Networks says that as it moves forward with its fiber-to-the-cell (FTTC) initiative, it expects that legacy TDM-based T-1 revenue will fade out of its wholesale wireless backhaul revenue at some point in 2016.

Speaking to investors during its first-quarter earnings call, Tim Biltz, CEO of Lumos Networks, said that TDM-based FTTC order backlog continues to decline every quarter.

"As of today we have more than 1,700 FTTC connections under contract or 55 percent of our long-term target," Biltz during the call, according to a Seeking Alpha transcript. "Our FTTC mix continues to improve. In March, less than 3 percent of our total FTTC backlog was TDM and we expect to be TDM-free within the FTTC revenue stream sometime in 2016."

The company continued to make progress in reaching more towers in its serving area with fiber in the first quarter. Lumos added 49 sites to the network to end the period with a total of 907, and FTTC connections rose by 50 percent year-on-year to 1,236. The company continues to target 1,300 FTTC connections by the end of the second quarter of 2015 and 1,700 by the end of 2015. 

Biltz said that it continues to see strong interest for small cell backhaul and interest from wireless operators to equip sites with dark fiber solutions, adding that wireless operators are at different stages of adoption of these solutions.

"RFP activity for small cells and macro dark fibers continues to heat up and those new growth areas will become a larger piece of our FTTC mix going forward," Biltz said. "Again the exact timing is carrier dependent and we are, however, in deep technical discussions with some of our carrier customers about their respective small cell rollout plans, which we view as an optimistic sign."

In response to the growing interest from wireless operators and enterprises that want to have complete control over their fiber service, the service provider has introduced its own dark fiber offering, which it says will provide connectivity for both wireless backhaul to macro sites and fronthaul for small cell sites. While Lumos did not cite any specific wireless operators that are interested in dark fiber, Verizon Wireless (NYSE: VZ) has been an advocate of this solution for wireless backhaul, one that traditionally ILECs have been reluctant to provide.

"We also launched our dark fiber product offering for both enterprise, but I think we'll see most of the take rate in the next short while any way, next 12 to 18 months probably, in the wireless space," Biltz said. "So, we see it as a big part of the going forward and we see the more urban markets getting that."

Besides wireless backhaul, the company's data revenue rose 6 percent to $27.8 million, and Lumos maintained its target for 9 percent growth in data revenue over the full year.

Stopping short of revealing any specific acquisition plans for itself, Biltz noted that Lightower's bid for Fibertech and Crown Castle's pending purchase of Sunesys are illustrating that the hunger for fiber-based solutions is growing.

"First we saw a nearly $2 billion merger between two leading private fiber companies and then a leading tower company announced its intention to purchase another leading private fiber company for over $1 billion," Biltz said. "Our goal is that within the next 18 months that Lumos will have a standalone pure play fiber business that shares many of the same attributes as these high multiple fiber bandwidth service providers."

Looking toward the rest of 2015, the company reiterated its financial guidance for revenue of approximately $202 million, and adjusted EBITDA of approximately $92 million and capital expenditures of about $112 million.

From an overall financial perspective, the company reported revenue of $50.5 million, up nearly 1 percent year-over-year. Adjusted EBITDA was more than $22.5 million, essentially flat from the prior year, while profit fell to $2.8 million from $4.1 million in the first quarter 2014. 

Shares of Lumos closed at $13.88, down 19 cents or 1.35 percent, in Wednesday trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- see the Seeking Alpha earnings transcript

Special Report: Wireline telecom earnings in the first quarter of 2015

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