tw telecom (Nasdaq: TWTC): Enterprise technology migrations, wireless backhaul to drive new revenue

tw telecom (Nasdaq: TWTC), while suffering the same slowdowns every carrier that serves the business segment faced in the recent recession, was able to do it without making major job or service cuts.

Speaking at this week's Wells Fargo Securities, Technology, Media and Telecom (TMT) Conference, Larissa Herda, CEO and Chairman of tw telecom, said the company actually grew during the recent economic downturn.  

"During the recession, growth did slow down a bit, but one of the things that differentiate us from other telecom service providers of our size or larger is we continued to grow through the recession," Herda said. "We also continued to invest through the recession and we did not lay people off."  

Herda added that companies that did conduct layoffs "will have to recover from doing those things and therefore they have to recover from having doing those things and reinvesting to get back to growth."

Of course, there's no one silver bullet element that's going to get tw telecom back to double digit growth.

Ramping up services
One element of its growth strategy is a continual focus on new services. Throughout 2009 and 2010 were various product enhancements, including new converged services and Ethernet.

During the third quarter, Ethernet and IP/VPN services, for instance grew 28 percent year over year.

"In this business there's no one thing that's going to tip the scale to get back to double digit growth, so we're constantly turning the dials in our business to maintain our disciplined approach to capital spending based on getting large contracts," Herda said.

All of these services are supported by a group of 70 new sales people and enhancing the customer experience.

By focusing on the customer experience, tw telecom has been able to keep revenue churn down to .2 to .3 percent.

Herda believes what will drive its growth in the next year will be the inevitable movement towards next-gen services.

Although tw telecom's business customers remain cautious about spending, Herda emphasized that business customers will need to take a chance on adopting next-gen service sets to move their businesses forward.

"I think in general, the attitude from customers is that they have to do something with their networks because they can't advance their own businesses unless they move to new technology," she said. "They need more and more bandwidth out to the branch locations so in order to do that they need to get off the old technology and move to the new technology."

Wholesale holds stable
In addition to business services, tw telecom continues to pursue wholesale service opportunities selling to other service providers.

While not growing nearly as fast as its enterprise business, tw telecom did see a slight increase in Q3 wholesale carrier sales.

Similar to other service providers, it is seeing growing opportunities in selling wireless backhaul services.

"A quarter of our carrier revenue stream is wireless," Herda said. "That's been growing over many years and has contributed to the stability of our business."

Still, Herda cautions that while wireless backhaul is a sizeable opportunity it's not going to put all of its eggs in just one basket. Similar to its enterprise business, tw telecom wants to have a diversity of opportunities it can pursue.

"The way we look at the wireless business is also very strategic," she said. "We don't want to have an overdependence on any one customer or any individual vertical. With wireless we have very carefully gone after opportunities that meet our strategic objectives."

Keeping to the idea of diversity, tw telecom would likely extend its fiber into area cell sites that would be simultaneously used to serve business customers.

"They could be deals where we able to do market expansions because we have built fiber into a number of cell sites so we're able to get other revenue opportunities," Herda said. "This is different from some other companies out there that are going after the wireless business where we see them with very different return criteria."

Given that it wants to get a solid return on its investments, tw telecom is not trying to target every wireless operator, but rather get a decent slice of the market.

Overall, that strategic wireless backhaul strategy has worked. In the past year, tw telecom signed about $30 million worth of contracts with wireless operators with a mix of one, three and five year contracts.

While not revealing any specific deals, Herda said "that our cap spending has been higher, and there's been some concern from the cell site analysts, but a lot of that capex is being spent ahead of some of new large wireless installations."

For more:
- here's the link to the tw telecom webcast (registration req.)

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